Wednesday, July 23, 2014

Health spending actually fell while Obamacare insured Americans

Adam Berry/Getty Images News

The economy shrunk in the first quarter of 2014 and it might be all health care's fault. Believe it or not, that's a good thing.

According to the Bureau of Economic Analysis, the overall GDP shrank by 2.9 percent. This has led some commentators to call it the "worst quarter" in five years.

But that fall was largely driven by dip in health care spending. What's good for health policy tends to look bad for the health care sector. (And vice versa.)

The BEA initially estimated that health care spending climbed 9.1 percent in the first quarter of 2014 — a potentially worrisome increase. The agency released their second revision of that number today: now they believe that health care spending has fallen by 1.4 percent.

That means health care spending went down while the number of Americans with insurance may have gone up. According to the Altarum Institute, this marks the largest decline in health care services spending since the first quarter of 1982.

"Overall, the health care news is phenomenally good." said Peter Orszag, former director of the Congressional Budget Office and Office of Management and Budget. "The supposed acceleration in health spending has been shown to be false."

This revision is precisely what we would expect, based on the Census's Quarterly Services Survey released on June 11. This survey — which collects industry information like hospital revenue, inpatient days and discharges — provided the data that the BEA used to revise its numbers.

As Orszag explained, BEA's initial estimates were mostly a guess — an educated guess, but a guess nonetheless. "It was this puzzle: we had big increase in the early GDP numbers, but no evidence from other sources to match. That generated media hoopla, even though the number was basically made up."

Now that the data are in, they show that health spending actually declined in the first three months of 2014 relative to the end of 2013. That means the slowdown in health spending is continuing, though it's hard to pin down exactly what's driving it. Economists agree that the recession was causing part of the slowdown, but that effect should be winding down. Hospitals and other providers appear to be cutting waste and making the health care system more efficient. Obamacare is probably playing some role, but it's challenging to say how big that role is.

Charles Roehrig, director of the Altarum Institute's Center for Sustainable Health Spending, cautions against reading too much into the numbers. Data can be noisy from one quarter to the next; it's important to put today's news in a fuller context. Given the March surge in Obamacare enrollment, it's possible that we could see a bump in spending during the second quarter. Additionally, BEA's numbers reported out today only account for health care services; other elements of health spending may have behaved differently.

But it's hard not to be optimistic.

"It certainly has been good news up through the end of 2013," Roehrig said. "These other underlying indicators of health care — prices and employment — in the first quarter, they stayed low. In the big picture, the news is good."

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