Thursday, July 25, 2013

A Very Cool Look at Healthcare Spending and the Economy

I am smitten with a deceptively simple chart from the New England Journal of Medicine's July 11 issue.

Regular readers know that I love straightforward graphics that capture complex ideas. In The Gross Domestic Product and Health Care Spending, economist Victor Fuchs creates a clever chart highlighting the long-term relationship between healthcare spending and the overall economy. I reproduce the chart below so you can savor it, too.

Among policy wonks, there is ongoing debate about the recent slowdown in health spending. Are we in the beginning of a long-term slowdown, or just a temporary pause? Look at the chart below, and then contemplate one of the most dangerous phrases in healthcare policy:

This time is different.

To generate the chart below, Professor Fuchs plots changes in per-capita national health care expenditures vs. per-capita gross domestic product. (Both data series are adjusted for inflation.) The annual data for each series are smoothed with a 5-year moving average. To make the correlation easier to see, the GDP value for each year is increased by 2.4%—the average gap in growth rates over the 60 year period.

Wow, what an awesome chart!

Fuchs attributes the mid-1990s divergence to managed care. Looking ahead, he dryly notes: “Some observers place great emphasis on the particularly slow growth of national health care expenditures in 2010 and 2011. How useful is the experience of growth over a period of 2 years in predicting the growth rate over the next 20 years? The answer seems to be not at all.” Oh, snap!

CMS made a similar, but less elegant, argument in its annual analysis of national health expenditures. See the “Price vs. Utilization” section in Who Paid For Prescription Drugs In 2011?

Yes, sometimes a picture is worth a thousand models.

Source: xkcd


  1. Anyone care to speculate on the divergence occurring in the 1993 through 2000?

  2. Managed care. See Page 2, right column, in the original NEJM article.


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