Health Care

ObamaCare could be in intensive care on Thursday. That’s when the Supreme Court is expected to rule on the constitutionality of the Affordable Care Act. It’s widely expected that a majority of the judges will vote to strike down at least the core provision of the health care law that requires most Americans to purchase health insurance. Then again, as Reuters observed yesterday, “The Supreme Court's decision in the Arizona immigration case on Monday showed a conciliatory streak within a divided court that could emerge again when the justices issue their climactic healthcare decision on Thursday.”

Health care is a big business in the US. It accounts for lots of jobs, and is one of the few industries that have been hiring more workers during the current “jobless” recovery. The government spends a great deal of money providing health care benefits, which have significantly widened the US budget deficit. Health care costs have been rising rapidly. The number of Americans eligible to receive government-funded health care benefits is also rising rapidly. And many more are becoming eligible as the Baby Boomers are starting to retire. Let’s review the underlying statistics behind these trends:

(1) Health care is a big business. In current dollars, Americans spent a record $2.2 trillion (saar) during Q1-2012, up 100% since 2000. Spending on health care has accounted for a record 14% of nominal GDP over the past three years, up from only 4% during the early 1960s. Over the past three years, it has been at a record 20% of total PCE (personal consumption expenditures), up from 6% in 1960.

Since the mid-1960s, total PCE rose from 61% of GDP to a record 71% of GDP now. That entire increase was attributable to health care spending. Excluding health care, consumer spending currently accounts for only 57% of GDP, the same as in the mid-1960s!

The health care industry's private payrolls rose by 6.3 million since 1990 to a record 14.3 million during May. That accounted for 26.4% of the gain in total payrolls over this period. Health care jobs now account for a record 10.8% of total payrolls, up from 7.3% during January 1990.

(2) The government’s tab for health care benefits is high and heading higher. The US Treasury provides monthly data on federal government outlays for Medicaid and Medicare. I monitor the 12-month sums, which totaled $734 billion for both combined through May. That’s up nearly 100% over the past 10 years, well outpacing the 37% increase in wages and salaries.

Additional perspective on the size of the government’s role in the health care industry can be had by comparing the sum of federal outlays on Medicare plus two times federal outlays on Medicaid. Unlike Medicare, which is solely a federal program, Medicaid is a joint federal-state program. Each state operates its own Medicaid system, but receives matching funds and grants. The wealthiest states receive a federal match of 50%, while poorer states receive a larger match. Our calculations show that the government accounts for roughly half of spending on health care in America.

(3) Per capita spending on health care benefits is rising rapidly, and so is the number of beneficiaries. Data available annually through 2010 show that enrollment in Medicaid and Medicare rose to 98.8 million that year, a 36.7% increase over the past 10 years. There are lots more beneficiaries coming soon as the Baby Boomers start to retire and become eligible for Medicare. Medicare spending per capita and Medicaid per capita rose 92.2% and 49.0% over the past 10 years.

Today's Morning Briefing: To Your Health! (1) The Supremes will rule on Thursday. (2) Health care is a big business. (3) Consumer spending is 71% of GDP, but only 57% without health care. (4) Government pays for half of health care spending. (5) Number of beneficiaries is soaring. (6) S&P 500 Health Care shares doing well despite uncertainty about ObamaCare. (7) Analysts expect less earnings growth for Health Care. (8) Q2 earnings revisions trending lower for all but two S&P 500 sectors. (9) Jobs are getting harder to get again. (10) Four regional Fed surveys add up to weaker economy in June. (More for subscribers.)