In 1950 health-care expenditures in the United States were 5.2 percent of GDP; by 2000 this share had risen to 15.4 percent. Driving these increases were several factors: increasing relative prices of health care compared to other goods, a larger population of the elderly, and increased longevity. Since 1950 the average life span has increased by 1.7 years per decade.
Many observers think these trends will continue. Health-care costs have continued to rise rapidly in recent years. Two economists, Charles I. Jones and Robert E. Hall, go further and suggest normal increases in economic growth will propel health-care expenditures to approximately 30 percent of GDP by mid-century. Their argument is that as societies grow wealthier, individuals face the tradeoff of buying more goods (automobiles or cars) to enjoy their current life span or spending more on health care to extend their lives. At some point, the extra years of life become more valuable than consumer durables, with the result that spending on health care rises rapidly.
Assuming this argument is correct and health-care expenditures increase, what other component of GDP will fall? If investment is crowded out, living standards would fall in the long run, reducing the ability to consume both health and non health goods. Perhaps it is more likely that other types of consumption spending will fall. Spending on health would then come at the expense of spending on consumer durables or larger houses. That would be the preferred outcome.