Thursday, August 20, 2009

A look at health care expenses and consumer spending.

Last week I posted a link to CNBC interviews by Tobias Levkovich. He alluded to the fact that over the last 30 years, all growth in consumer expenditure as a percentage of GDP had come from health care.

Well, came across this interesting post from Calculated Risk which discusses consumer spending as a percentage of GDP with and without health-care expenditures. It basically drives home the above point.

I’ll let the graph do the talking:

The inference is quite amazing. The consumers did NOT go on a spending binge as is widely believed. The actual increase was barely in line with GDP growth rates. The increase in consumer spending as a percentage of GDP was simply due to the rise in health care costs (!)

Ex-health, the ratio has stagnated. CR has these ominous lines:

But the more important point is what will happen in the future. From a demographic perspective, these are the best of times for healthcare expenses. The original baby busters (from 1925 to the early 1940s) are now at the peak medical expense years, but their medical care is being heavily supported by the baby boomers (now in their peak earning years).

Great point. The baby boomers could afford to support the expenses of the baby busters. Going forward, supporting baby boomers will be difficult. Health care expenses should thus face a secular downward pressure because of the changing demographics.

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