Major Trends in the U.S. Health Economy Since 1950

A very revealing article on health care expenditures appeared in the March 15, 2012 issue of the New England Journal of Medicine. The article looks at the spiraling costs of health care in the U.S. over the last 60 years and puts them into perspective.

The article’s author, Victor R. Fuchs, Ph.D., offers a sobering warning by saying, “The rapid growth of health expenditures is one of the most important economic trends in the United States in the post–World War II era. It has implications for the financial viability of federal and state governments and has resulted in stagnation of wages in most industries.”

Fuchs points out that in 1950, health expenditures accounted for only 4.6% of the gross domestic product (GDP) in the U.S. By the year 2009 health care costs had risen to take up 17% of the GDP. This is compared to most other countries which presently range from 9% to 11% of their respective GDPs.

To put this percentage into perspective, Fuchs notes that healthcare takes up a larger percentage of the economy than all of manufacturing, or all of wholesale and retail trade, or finance and insurance, or agriculture, mining, and construction combined.

In his report, Fuchs compared the costs of health care adjusting the amounts to take inflation into account so that all amounts were reported in 2009 dollars. Even with the inflation adjustment it is noted that the average per capita cost for healthcare in the US was $405 in 1950, $2050 in 1980, and has risen to $6807 by 2009. The percentage of these expenses paid by the patient in these same time frames dropped from 56% in 1950 to 27% in 1980, and down to 14% by 2009.

The article cites two basic reasons for the increase in costs. These are insurance, and an increase in technology with the specialization that is attributed to technology. Fuchs states, “There is a positive-feedback loop between new technology and the spread of health insurance: new technology stimulates the demand for insurance, and the spread of insurance stimulates the demand for new technology.”

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