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July 30, 2015 01:00 AM

Healthcare spending grows twice as fast as economy

Michael Sandler
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    Healthcare spending grew at twice the rate of the rest of the economy in the second quarter, renewing fears that the sector's upward march has resumed after nearly a half decade of relative calm.

    The U.S. Commerce Department's Bureau of Economic Analysis in its advance estimate (PDF) for second-quarter gross domestic product showed healthcare spending climbed 4.9% compared to the second quarter a year ago. The overall economy grew at a 2.3% rate in the quarter.

    It was the second straight quarter of fairly rapid growth in healthcare spending despite an overall sluggish economy. The sector grew 5.7% in the first quarter compared to the similar period in 2014.

    Some analysts said it is a mistake to read too much into the first estimate of quarterly growth. Healthcare expenses in the first quarter of 2014 turned out to be lower than expected when bad weather stopped people from taking advantage of expansions in coverage, according to Paul Hughes-Cromwick, senior health economist at the Altarum Institute's Center for Sustainable Health Spending.

    Still, the best indicator of healthcare spending is employment data, said Thomas Getzen, a health economist at Temple University. So when healthcare employment is robust, as it has been in the past couple of months, the contribution will rise.

    The second-quarter growth of 2.3% was up sharply from the 0.6% revised growth in the first quarter of 2015, and is significantly below the 4.6% growth in last year's second quarter, which was a high mark since the fourth quarter of 2011.

    The latest GDP report comes two days after CMS projected healthcare spending will resume its upward march in the coming decade. The CMS actuaries' annual outlook predicted U.S. health spending will grow 5.8% annually between 2014 and 2024. Even after adjusting that number for inflation, that would be significantly faster than the overall rate of economic growth and would be comparable to the growth rate in 2014, which hit 5.5% and was the first time since 2007 that the growth rate exceeded 5%.

    Skyrocketing prices of hepatitis C and other specialty drugs is a major contributor to the recent increases in spending, the actuaries said.

    The BEA's first revision of the second-quarter estimate will be released on Aug. 27.

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