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Special Post on Health Spending Trends

By May 1, 2014Commentary

In the midst of the disappointing news that GDP growth in the first quarter was only one-tenth of one percent, you can find an even more alarming number, 9.9%, which is how fast health spending rose in that period.  (BEA Report)    This follows 5.6% growth in the fourth quarter of 2013, which was a substantial jump from the 2.7% health spending increase in the third quarter.  The trend is clear and is almost certainly linked to the implementation of the Medicaid expansion and individual mandate provisions of the reform law.  And if I can read the Bureau of  Economic Analysis tables correctly, it appears that only .6% of this rise is due to price increases, suggesting that there was a surge of utilization.  While it is too early to panic, partly because these are only estimates, and because this could merely reflect pent-up demand for health services by people who previously did not have insurance, and that demand may ameliorate over time (although prior research does not support this idea), this spending surge is contrary to what the Administration projected in advocating passage of the reform law and has to be a concern for payers.

Because someone is paying for this massive rise in health spending and the consequence for whoever it is are likely not good.  Some of it could be coming out of pocket, which means consumers can’t spend as much on other goods and services, but most of it is likely being picked up by the government in the form of Medicaid payments or by commercial insurers.  The government really needs to spend even more money on health care, continuing to run high deficits and piling up the debt.  And commercial insurers, who keep putting a brave face on their pricing for exchange products, must be quaking and this report will do nothing to calm them.  Once more definitive information shows us what services are expanding growth fastest and which payers are responsible for reimbursing these new costs, we will have a better handle on the consequences.  Out of caution, if nothing else, we should certainly expect that commercial insurers will in fact raise premiums dramatically for upcoming renewal periods.  And the federal government and states are going to have even more problems with their budgets.  The genie is out of the box now, however, and it looks like we are headed back to the years of very high spending growth.

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