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Assessing the economy’s impact on national healthcare spending

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Nov. 20 2020, Updated 5:20 p.m. ET

National healthcare spending

National healthcare spending is a major driver of the hospital industry. According to National Health Expenditure Projections 2012-2022, in 2014, national spending on hospital care is expected to amount to $973 million. Analysts have projected that, by 2015, US hospital care will be a trillion dollar subindustry. For more information on the projected spending patterns in the hospital industry, please refer to A must-read overview of US hospital industry spending.

The graph above shows that a substantial 17.2% of the total GDP (gross domestic product) came from healthcare in 2012. According to the Center for Medicare and Medicaid Services (or CMS), this trend should continue, and spending will reach 19.3% of GDP in 2023.

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Economic growth

In the third quarter of 2014, analysts had projected a 10% spike in healthcare spending, as more than 10 million uninsured people obtained health insurance in 2014. This prediction, however, has proven to be incorrect. Spending rose by a modest 3.5% during the third quarter of 2014 compared to the same period last year. This slowdown in spending is due mainly to the recession of 2007–2009 in the US. However, for-profit hospital operators such as HCA Holdings (HCA), Universal Health Services (UHS), and Community Health Systems (CYH) managed to beat analysts’ expectations in the third quarter of 2014 as bad debt expenses reduced with an increase in the insured population.

According to a report by the Kaiser Family Foundation, healthcare spending is affected by an economy’s GDP. In recessionary periods, with lower incomes and reduced employer-sponsored insurance, consumer spending on health services reduces. However, research has proven that there’s a lag between the change in GDP levels and healthcare spending patterns. This lag results from the unique structure of the healthcare industry (XLV), where changes in insurance policies and investment decisions require a substantial amount of time. For more information on the structure of this industry, please refer to The 5 major entities of the hospital industry value chain.

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