This final revision for the quarter “illustrates the risks of trying to make inferences about long-term healthcare cost growth from noisy quarterly data,” said Jonathan Skinner, a professor and healthcare economist at Dartmouth College.
The first three months of the year were more noisy than usual with the start of the nation's health insurance expansion push under the Patient Protection and Affordable Care Act. Millions were expected to gain insurance as the year began, but many waited to enroll until March—the final month to gain subsidized private coverage under the law. The Bureau of Economic Analysis in April sought to estimate demand from the newly insured with an initial estimate of 10% annualized growth. But more accurate survey data on demand during January, February and March were not available until this month, so many economists expected a downward revision.
The health spending contraction in the latest estimate accounted for the bulk of the contraction in consumption in the overall economy, which made up two-thirds of the drag that shrank the nation's gross domestic product by 2.9%, said Ian Shepherdson, chief economist for consultancy Pantheon Macroeconomics. “So much for the BEA's initial view that the start of Obamacare triggered a surge in spending on healthcare,” he wrote.
The Obamacare bump in spending will take time to materialize. Second-quarter data may include spending for trips to the doctor or hospital by those newly insured in March, said Charles Roehrig, an economist and director of the Altarum Institute's Center for Sustainable Health Spending. “Once you gain coverage, it takes a while to establish yourself with a physician.”
The first-quarter spending estimate is the third from the bureau and considered by economists to be the most accurate. Nonetheless, the figure is a limited health spending snapshot that excludes public health, capital investment by hospitals and consumer purchases of pharmaceuticals. Economists cautioned a three-month window is a poor indicator of spending trends.
The estimate looks at annualized spending for January, February and March compared with spending the prior three months.
More time and data are needed to grasp how health spending will change with ACA enrollment and the economy, economists said. Skinner said he continues to project growth of 1.2% above GDP gains. “There's nothing that I've seen in the data that leads me to think that I'll be wrong, but there's nothing that I've seen in the data that leads me to think that I'm right,” he said. “It's too soon to tell.”
An analysis by the Altarum Institute found 12 quarters since 1970 when Bureau of Economic Analysis estimates captured a contraction in annualized health spending, which is an estimate for the year based on spending trends for a quarter. That included an annualized contraction of 2.5% for the first quarter of 1982. But not once has a full year then actually seen negative growth, said Paul Hughes-Cromwick, a senior health economist for the institute's Center for Sustainable Health Spending.
Harsh winter weather and delayed health insurance enrollment likely contributed to a deceleration in health spending during the first quarter compared with the final months of 2013, Roehrig said. The deceleration, however, was surprisingly steep, he said.