TGIF! A report I get and enjoy comes from Altarum (a non-profit consulting organization) looking at various economic data elements with regard to healthcare spending across a number of metrics (percent of GDP, time series growth, etc.). Granted, the report is a bit “wonky” but given what I do for a living, “wonky” is kind of my middle name. The Altarum report with data through November 2023, is available here: Altarum-January-2024-HSEI-Combined
I’ve written a fair amount across these past 9 or so months, about healthcare costs and the stability or instability of government funded programs such as Medicare and Medicaid – https://rhislop3.com/2023/09/18/issue-medicare-solvency/ Healthcare spending in the U.S. (just healthcare) is in dollars, larger or greater in amount, than the GDP of all other world nations except China. We’ll likely pass the China GDP amount within the next year or so. Simply put, the U.S. spends more on just healthcare than the total economic output of countries like France, Germany, Japan, and Canada. There is no sign that this growth in spending will slow anytime soon and certainly, is likely to accelerate as the population ages and requires or demands, more care services.
Healthcare spending as a percent of GDP continues to climb – now 17.4%. GDP growth post-pandemic has allowed healthcare spending as a percent of GDP to remain a bit flatter than pre-pandemic measures.
Yet, even with recent fairly robust GDP growth, healthcare spending has run ahead of GDP growth. The chart above is illustrative. The spending growth is utilization driven, not price driven. While prices have increased somewhat, utilization and personal health spending have risen faster (personal health spending are dollars net of insurance costs, govt. administration, investment, and public health). The growth in personal health spending was 7.3% compared to total U.S. healthcare spending growth averaging around 6%. As shown by the chart below, about 3% of the growth in spending is price related while 4.4% is attributable to utilization.
Spending on hospital care, physician care, and drugs account for the most dollars expended, the fastest growth in overall spending occurred in home health care. Home health spending increased by 12.9% YoY, followed by prescription drug cost spending of 12.2%. Hospital spending increased by 5.9% but represents 31% of all dollars spent. Despite home health spending growing at the fastest clip, it represents only 3% of all dollars spent.
Tracking health spending across the last three plus years, the impact of the pandemic is clearly visible. Growth as of late, driven by utilization, is a combination of the demands of an aging population and a certain amount of pent-up demand driven by altered access during the pandemic. For example, between Nov. 2020 and Nov. 2021, total spending grew by $8.7 billion. As the pandemic waned, spending between Nov. 2021 and Nov. 2022 grew by $154 billion. As the pandemic basically resolved and the Public Health Emergency ended, spending between Nov. 2022 and Nov. 2023 returned to more of a normative trend, increasing by $268.7 billion, almost 31 times the growth during the height of the pandemic.
Looking ahead to 2024, what this data tells me is that healthcare spending will continue to trend (in amount) faster than GDP growth. For programs like Medicare, already teetering to insolvency, the growth element related to increased utilization is more concerning than growth due to price increases. The growth categories of home health and prescription drugs are clearly more driven by an aging population demanding more care than by population growth in general (fairly flat, net of immigration as today, as many people turn 65 daily than babies are born).
Taking a look at the overall picture of government spending, there are red flags everywhere…and this is an election year. First, total debt is at its highest point ever as a percentage of GDP, eclipsing World War II ratios – 123% of GDP. The federal government ran a deficit of $1.7 trillion in fiscal year 2023, $320 billion (23%) more than the FY2022 deficit. Revenues decreased by $457 billion (9%), and outlays decreased by $83 billion (1%) year-over-year. Obviously, with these kinds of ratios and results, the total deficit grew.
Today, the cost of servicing the debt tied to the deficit is the highest it has ever been in real dollars and is continuing to grow. The drivers of this growth are the size of the deficit and the rise in financing costs due to rising interest rates. As the deficit is financed by the issuance of Treasury securities, rising rates and soft demand for longer term securities (due to rate uncertainty), raises the borrowing costs to the government. As earlier issued securities come due and require refinancing, the debt today that was on the books from say, three years ago, is being replaced by significantly more expensive debt. Using a simple analogy, this is like refinancing a mortgage obtained in 2020 at 3% with a mortgage obtained at today’s rate of 6.75%.
TGIF! Given that this is an election year, I hope that this kind of post and the included data is helpful for readers and followers to contextualize, some of the economic issues that are or should be, top of mind in our political deliberations. I know they are for me.