Real gross domestic product fell 2.9 percent at an annual rate during the first quarter of this year, according to a Bureau of Economic Analysis estimate released in June.
One significant driver of that GDP increase was a 1.4 percent drop in real healthcare spending at an annual rate. Although the slowdown in healthcare spending growth can be interpreted as a positive development, it also leads to slower overall economic growth in the short-term, according to a Health Affairs article by Jason Hockenberry, PhD, a health economist and assistant professor at Emory University, and Kenneth Thorpe, PhD, a professor and chair of the Department of Health Policy & Management at Emory University's Rollins School of Public Health.
Here are four things to know about the connection between healthcare spending and GDP.
1. Healthcare expenditures have been taking up an increasingly large portion of GDP in recent decades, according to Drs. Hockenberry and Thorpe. In 1960, national healthcare spending was 5 percent of $0.54 trillion in nominal GDP. By 2012, national healthcare expenditures made up 17.2 percent of $16.2 trillion in nominal GDP.
2. In the short term, slowing healthcare spending means shrinking GDP. "If healthcare expenditures are successfully curbed, it will take time for this spending to find its way into other sectors of the economy," Drs. Hockenberry and Thorpe write.
3. Healthcare spending has historically boosted GDP growth. During the past five decades, healthcare spending has moderated economic recessions. Therefore, as healthcare spending has slowed in recent years, GDP growth is also decelerating, according to the article.
4. To accurately assess economic health, it's best to consider GDP growth net of healthcare spending and healthcare spending separately, Drs.Hockenberry and Thorpe conclude: "In the short term, flagging health care spending will reduce GDP. It may even lead to higher than expected unemployment if the growth in health care spending continues to abet. In the long term, having a more efficient system frees up resources. The reallocation of these resources can and should be used to reduce government debt and spur private investment in other productive sectors."