A cursory look at personal income statistics shows that the biggest drag on personal income right now is the decline in transfer payment from the government. At first this seems natural as the economy is recovering and automatic stabilizers like unemployment insurance work in both directions. They slow the descent into recession but as they roll off they also slow the recovery.

Yet, the recent numbers were to big to explained by unemployment insurance alone. It turns out government health care spending is dropping by unprecedented amounts.

Below are year over year declines in transfer payments

FRED Graph

The blue line is Medicaid which is now outpacing Unemployment insurance in terms of absolute year-over-year spending reduction. The red line is Medicare, which is whose year-over-year spending is not quite in decline but appear poised to make declines in the coming months.

This may be why the fundamentals in health care look surprisingly weak. Job gains have slowed as well as capital expenditure.