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New economic data suggest spike in health spending

New economic data suggest spike in health spending

The White House sought to quash any fear that Obamacare is reversing downward trends in health spending as very preliminary estimates for U.S. economic growth in the first months of 2014 suggested spending on healthcare is rebounding sharply.

Health spending during the first quarter was on pace to increase by $43.3 billion in 2014, according to the first best guess from the Bureau of Economic Analysis. That would mean a 9.9% rise in consumer spending for hospitals, nursing homes, physician visits and other healthcare services — much higher than the spike economists and federal actuaries projected would come as millions gained insurance through the Patient Protection and Affordable Care Act.

In a blog post, the White House described higher demand for healthcare as “neither a surprise, nor a cause for concern” in light of the Affordable Care Act's insurance expansion, which seeks to improve access to care. “Furthermore, any upward pressure on healthcare spending growth from expanding insurance coverage will cease once coverage stabilizes at its new higher level, so it does not affect the longer-term outlook for spending growth,” the administration wrote. The post also noted that healthcare prices increased marginally at a rate of 0.5% annually.

Charles Roehrig, an economist and director of the Altarum Institute's Center for Sustainable Health Spending, said the center's recent estimates show health spending growth this year of 6% to 7% thanks to newly insured consumers and the recession's fading effect. Those figures are in line with federal projections released last year of 6.1% growth in health spending for 2014.


The new figures from the Bureau of Economic Analysis are among closely watched data as policymakers and economists watch for indicators of how fast and how strong health spending will rebound with the economy. Growth in health spending slumped with the recession to just under 4% and remained sluggish as the recovery sputtered. Mr. Roehrig said data indicate that healthcare price growth has hovered near 1% in recent months, which would suggest that spending growth has been fueled by higher use.

The first-quarter health spending is an increase of 2.4% at a quarterly rate from the prior quarter and is up 5.4% from the same quarter a year ago. The gross domestic product figures do not include spending for healthcare goods, such as pharmaceuticals or medical equipment. Overall economic growth during the first quarter was down sharply at 0.1% for the quarter, which the BEA said was a result of exports and weak private investment in inventory. Healthcare contributed 1.1% to the growth in overall gross domestic product, the largest contribution of any service industry.

Mr. Roehrig cautioned that the new health spending figures will be revised twice as more data become available. Last quarter's estimates may be shakier than most, he said, because it's the first time the Bureau of Economic Analysis has tried to calculate health spending by millions of newly insured.

In contrast to the surprising growth suggested in the economic figures, some healthcare companies have reported a drop in demand early this year because frigid temperatures and snow kept consumers at home. Healthcare companies Laboratory Corporation of America Holdings, Quest Diagnostics and HealthSouth Corp. blamed the harsh winter for weak results.

Melanie Evans writes for Modern Healthcare, a sister publication of Business Insurance.