Blog Post

As 2014 begins, health spending skyrockets

April 30, 2014

    This story is in progress. Last updated at 3:55 p.m.

    Dan Diamond, Managing Editor

    New GDP numbers released on Wednesday morning raised two concerns for policy watchers: That the overall economy isn't growing—but health care spending is about to boom, again.

    According to the Bureau of Economic Analysis, economic growth was basically flat in the first quarter of 2014, growing at a meager 0.1%.

    But health spending spiked in the first quarter, jumping by nearly 10%. That's the largest single-quarter spike in health spending since 1980, the Washington Examiner's Philip Klein pointed out, and a potential sign that the slowdown in health care cost growth (or as I prefer to call it, "slowth") may be drawing to a close. 

    Much has been made of the Affordable Care Act's effects—or not—on bending the health care cost curve. Health spending has grown at historically slow rates in the past four years, and some defenders of the ACA have cited that trend as evidence that the law is working to rein in health costs, which currently represent almost one-fifth of national spending and an outsize proportion of federal and state budgets.

    (Critics counter that it's too soon to know if the ACA is curbing spending, given that many of the law's provisions didn't even kick in until this year.)

    But these latest figures follow other reports that health care spending is beginning to spike again, Sarah Kliff writes at Vox. And the Bureau of Economic Analysis and others say that the ACA rollout is likely responsible, with personal health care consumption rising as millions of Americans gained coverage through Medicaid and the law's insurance exchanges. That squares with CBO forecasts of an ACA-related bump in spending in 2014, Igor Volsky points out at ThinkProgress. (And it also tracks with historic trends; when Medicare was first rolled out in the summer of 1966, there were also intense jumps in health spending that year too—a nearly 15% surge in Q2 1966 and an 11% jump in Q3 1966.)

    While some of the most recent data will be revised—today's GDP figures are preliminary—economists say that they're starting to assemble a picture of where the health sector is headed. And a major rebound in health spending may be on the horizon.

    "We're at the highest level of growth since the [2008] slowdown began," Paul Hughes-Cromwick, a senior health economist at the Altarum Institute, told Kliff. "You have to go back seven years to see growth like this."

    A renewed, consistent surge in health spending could present concerns for federal officials seeking to balance the budget and carry out ACA implementation, given that the law's coverage expansion provisions may continue to drive costs even higher. But That could also make the health law—and Medicare and Medicaid spending—a target for budget-cutters in the months and years ahead, with trickle-down effects for provider reimbursement.

    In the short-term, there is a silver lining to the rising health spending, however. According to Ian Shepherdson, chief economist for Pantheon Macroeconomics, the health sector propped up the rest of the economy.

    "If health care spending had been unchanged, the [overall] GDP growth number would have been -1.0%," Shepherdson told Brett LoGuirato at Business Insider.

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