Wednesday, November 1, 2023

Journal Club: The Economist: Have Healthcare Costs Stopped Rising (as Share of GDP)

Normally, I would only cite an open access article as "journal club" (and in fact you might get a couple free articles a month from this source?).   But here, the headline and key graphic carry the story.  Healthcare costs rose greatly as "share of GDP" for several decades, like from 5% to 15%.   But in many countries, that "share of GDP" value plateaued a while back.   (An earlier 9/2023 NYT article talked about growt slowdown in Medicare.[*]) 

click to enlarge

Healthcare costs, which once seemed to be on an unstoppable rise, have plateaued in many parts of the world [as share of GDP]. This shift defies previous expectations of healthcare's inexorable growth, with factors like increased productivity, technological changes, and demand-side reforms contributing to the slowdown

However, the aging population and potential productivity setbacks from the COVID-19 pandemic may challenge this trend in the future. Despite these uncertainties, healthcare's share of the economy has not continued its steep ascent, offering hope for cost control.


For a long time, health care was eating the world. From 1950 to 2009 American spending on hospitals, medics and the like rose from 5% of gdp to 17%. Between the late 1970s and the mid-2010s British public spending on health rose by 4% a year in real terms, much faster than the economy’s growth of 2% a year. From 1980 to 2010 overall French prices rose by 150%; the price of caring for a sick or old person rose by 250%. Among economists, the proposition “health care’s share of gdp rises” was almost as close to an iron law as “free trade is good” or “rent controls do not work”.

The iron has now melted. Even as populations age, and as the world continues to deal with the fallout from the covid-19 pandemic, health care is no longer taking over the economy. Across the rich world health care’s share of gdp jumped in 2020 and 2021, because of a combination of pandemic-related spending and lower gdp. However, it has since fallen back to close to its level in 2008 (see chart 1). Because of this “flattening of the curve”, health spending today is somewhere in the region of $2trn below its pre-2009 trend.

In some countries the changes are still more dramatic. The ratio of health-care spending to gdp has fallen from its pre-covid peak in Australia and Sweden. In Norway it has tumbled by a remarkable 2.5 percentage points of gdp from its level in 2016. Even in America—the land of costly health care—something has changed. A new measure published by the Bureau of Economic Analysis suggests that the share of spending going on health care has been falling since before the pandemic. A widespread slowdown has never happened before. It has not even come close to happening.


AI Corner

A friend asked what are 10 ways Chat GPT4 would suggest to reduce US healthcare costs.  It came up with ten kind of boring ones.  We asked for 10 creative ways, and it came up with those too.   Here.


US data 10/2023 (if you're used to seeing HHS data or KFF data this is a good alternate)


NYT on Medicare "slow down" 9/2023 (this is a pretty thorough review of US cost drivers)