Why Health Care Spending Is Falling Even As The Number Of Insured Americans Is Rising


The U.S. economy shrank at a annual rate of 2.9 percent in the January-March quarter, following a harsh winter that economists predict contributed to the biggest economic contraction since the beginning of the recession. Two-thirds of the downward revision “reflected a decline in health care spending,” a somewhat surprising drop given the expansion of coverage under the Affordable Care Act. Health-related spending fell by $6.4 billion instead of rising by $39.9 billion as previously estimated.

How can health care spending be falling, even as the uninsured rate is dropping?

The first quarter presents data from January through March, the very early months of coverage under the health care law. The real surge in enrollment didn’t occur until March, or the very end of that month during the final days of open enrollment. At that point, nearly 3.8 million people selected a plan through the exchanges, including 1.2 million young people. The rush represented “an 89 precent increase in the cumulative number of individuals” who enrolled in a health care plan through the exchange between March 1 and April 19.

Washington & Lee University law professor Timothy Jost points out that those individuals “would not have had coverage until April or May,” and their spending was thus not calculated in the first quarter numbers. Finding doctors and booking appointments will also take time, meaning that their health spending won’t show up until spring or summer.

“At the same time, cost controls, which have initially been found to be quite effective, push the other way,” economist Jared Bernstein predicts on his blog. “The punchline is: don’t expect to learn anything about Obamacare’s impact on GDP from one quarter of data.”

And then there is one more factor to consider: the growing popularity of high deductible health care plans depressing health care spending (that’s any plan with a deductible of $1,250 per person or $2,500 per family). A survey of employers from 2013 found that “66 percent of companies with 1,000 employees or more offered at least one such plan” and the figure is “expected to grow to nearly 80 percent” in 2014. An estimated 80 percent of those who have enrolled in health care coverage through the Affordable Care Act’s exchanges also singed up for coverage with “deductibles of $2,000 for singles and $4,000 for families.”

“This trend has driven decreases in medical expenditures and will continue to do so,” Jost notes.