Should Two-Fifths Of All Real Per Capita Income Growth Go For Healthcare?

Implications For Government Policy, Income Inequality, And Much Else

A recent Health Affairs article by researchers at the Centers for Medicare and Medicaid Services (CMS) estimates that national health expenditures will increase by 8.2 percent in 2024 and 7.1 percent in 2025. The article also forecasts a growth rate of 5.8 percent from 2023 to 2033, compared to a 4.3 percent growth rate for GDP, a measure of our national income.

That may not seem like a big deal, given the steady rise in health spending over many decades. And more healthcare is beneficial, right? Or can too much of a good thing be less wonderful than it first seems? Healthcare costs should never be viewed alone. They have significant impacts on government budgets, the working class, income distribution, the labor market, and the poor.

To better understand those impacts, let’s convert the “Excess Cost,” or the 1.3 (5.8 – 4.3) percentage-point higher growth rate for healthcare compared to GDP, as noted in the article, into a measure of how much of the total income growth in the economy goes toward health care. The latter provides a much more straightforward way to analyze the issue and make projections.

We understand that if healthcare spending only increases at the same rate as the economy, it would occupy the same share of additional national income as it did previously, such as 17.6 percent in 2023. The CMS authors estimate that the share will rise to 20.3 percent by 2033.

However, to increase its share of GDP to 20.3 percent, the share of all new spending going to health care must be even higher. Therefore, the projections suggest that healthcare costs will make up 27 percent of the nominal GDP growth from 2023 to 2025 and 26 percent from 2023 to 2043 (see graph above).

Even that adjustment does not tell the whole story. After accounting for inflation, estimated at 2.2 percent in the article, and population growth, at 0.6 percent, the share of additional real (inflation-adjusted) national income per capita allocated to healthcare now totals 48 percent for the period from 2023 to 2025 and 38 percent for the period from 2023 to 2033.

To have healthcare grow from roughly 5 percent of GDP in 1960 to about 18 percent today, it often absorbed 25 to 30 percent of per capita income growth. Considering the growing share of the elderly due to the current aging of baby boomers, it becomes clear why this new projection can reasonably align with past periods of rapid growth.

Healthcare, moreover, is the only major government program where Congress delegated most of its power of appropriations to private sector providers and consumers. Essentially, the healthcare industry has fewer budget restrictions than almost any other sector. Why would we expect this juggernaut to slow down, as long as Congress passes on its power of appropriations?

The implications extend far beyond healthcare, which, by the way, mainly concentrates resources on chronic and acute care rather than prevention.

Government Budgets. As healthcare’s share of GDP increased in the past, tax rates generally remained unchanged. Instead, government debt and cuts to other budget priorities mainly financed the growth in healthcare spending.

The Working Class. When most, all, or more than all growth in labor compensation is allocated toward higher health insurance costs, the working class often sees little to no gains in inflation-adjusted cash wages. Anne Case and Angus Deaton, who documented the increasing numbers of deaths of despair related to drugs, alcohol abuse, and suicide, attribute these issues partly to how “[t]he U.S. healthcare system…is needlessly eroding workers’ wages” while failing to provide preventive care. Meanwhile, Sylvester Schieber, a former chair of the Social Security Advisory Board, provides numerous examples illustrating how an employer-provided household insurance policy, which often costs $20,000 or more, can significantly limit the growth in cash earnings available to workers at nearly all earning levels, except for the very top.

The Income Distribution. Most people do not consider higher-cost, employer- or government-provided health insurance as a form of income increase. Similarly, many studies and reports on income distribution overlook healthcare improvements when comparing income gains across different groups. Changes in the income distribution vary considerably depending on whether one examines wages, total labor compensation (including health insurance), or total income, including government transfers (also including health insurance).

The Labor Market. Recent studies show limited job growth over the past six months, even though the healthcare sector continues its steady upward trend. Healthcare acts as an economic stabilizer by maintaining or increasing employment even during recessions. Conversely, the rise in healthcare spending makes labor more expensive for other employment or industrial sectors that might already be in decline.

Poverty Policy. As the Health Affairs article suggests in its subtitle, the rapid rise in health costs continues even as “health coverage declines.” In the recent 2025 legislation, Congress effectively decided to reduce health spending on the nonelderly poor while continuing to increase health spending for many nonpoor beneficiaries, including me.

Since the government covers nearly two-thirds of all healthcare costs, it holds the primary responsibility for these impacts. Admittedly, the projections could be inaccurate. Still, do we want a healthcare system that threatens to account for almost two-fifths of per capita real income growth from 2023 to 2033?

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To gain an understanding of how healthcare spending fits in with so many other ways that Congress refuses to address the real issues facing the American people, see Abandoned: How Republicans and Democrats Deserted The Working Class, The Young, And The American Dream.

* To compare excess cost growth with the growth in share of per capita GDP, let r = the economic growth rate, g = the population growth rate, and i = the initial share of GDP spent on health care. Then, Cost Growth in Excess of GDP = (r - g) * (Share of growth per capita - i) / i.