Reform Update: 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. 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.

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.

Mixed gains for access, cost and quality heading into insurance expansion

 Growth in health spending, which slowed to a historically sluggish pace with the Great Recession, increased more rapidly among private insurers than Medicare, the Commonwealth Fund reported in an analysis of changes to healthcare access, quality, cost and outcome measures between 2007 and 2012. The report offers a bleak snapshot of progress during the five-year period. States that saw performance worsen or stagnate outnumbered those that made progress for two-thirds of the 42 measures included in the report. Cost prevented a growing number of adults from seeking care. In 42 states, a growing number of adults did not seek medical care because of costs. The results reflect access before the start of major Affordable Care Act reforms, researchers said, and underscore that “states and the nation are still a long way from becoming places where everyone has access to high-quality, affordable care and an equal opportunity for a long and healthy life.”

Early results for new entrants to insurance markets

Expenses from the cost of forming an insurance company helped erode margins for North Shore-LIJ Health System, the Great Neck, N.Y.-based system reported in financial statements released this week. The system is one of several to enter the insurance market and other new health plan operators are also reporting that the ventures have hit the bottom line. Partners HealthCare System, Boston, said the Neighborhood Health Plan, which it acquired in October 2012, ended fiscal 2013 on Sept. 30 that year with income of $18.7 million on revenue of $1.4 billion. 

 

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