Health spending shrinks, may surge next year

U.S. healthcare spending is on track to shrink 1.4% this year, according to a revised estimate of first-quarter spending by the federal Bureau of Economic Analysis. That should quell fears of a massive first-quarter increase in healthcare spending thanks to Obamacare.

But a separate report by Price waterhouse Coopers’ Health Research Institute predicted that healthcare spending will jump by 6.8% next year, spurred by the recovering economy and increased insurance coverage.

The initial BEA report based on firstquarter spending pointed to a big jump with its estimate of a 9.9% annual increase. But the third and final revision of first-quarter spending, released last week, put health spending on pace to decline 1.4% for the year, a major contributor to a 2.9% decline in U.S. economic activity in the first quarter.

This final revision for the first quarter “illustrates the risks of trying to make inferences about long-term healthcare cost growth from noisy quarterly data,” said Jonathan Skinner, a Dartmouth University healthcare economist.

“So much for the BEA’s initial view that the start of Obamacare triggered a surge in spending on healthcare,” wrote Ian Shepherdson, chief economist for consultancy Pantheon Macroeconomics.

The Obamacare bump in spending will take time to materialize, some experts say. 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.”

More time and data are needed to grasp how health spending will change with Affordable Care Act enrollment and the economy, economists said. Skinner said he continues to project growth of 1.2% above GDP gains. “It’s too soon to tell,” he said.

Harsh winter weather and delayed health insurance enrollment likely contributed to a deceleration in health spending during the first quarter com- pared with the final months of 2013, Roehrig said.

Meanwhile, Price water house Coopers’ projected spike in healthcare spending for 2015 is more than double the rate of inflation in recent years. But the report concluded that emerging trends in coverage and delivery systems are tamping down costs. For example, employers continue to shift toward high-deductible plans that require workers to pay more out of pocket.

Price water house Coopers’ report was based on a survey of more than 1,000 employers covering 93 million people.