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Your Guide To The Latest Freakout Over Health Care Spending

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Health care spending appears to be on the rise after several years of historically low growth, provoking a minor freakout about whether the bad old days are back and whether Obamacare is ruining everything.

The latest data point being used to declare the Affordable Care Act a failure and get everyone all worked up is an advance estimate from the Department of Commerce's Bureau of Economic Analysis, which says health care spending increased 9.9 percent during the first quarter of this year after growing 5.6 percent in the last three months of 2013.

Those are big jumps! And it's especially striking considering national health spending rose just 3.7 percent to $2.79 trillion in 2012, the most recent year analyzed by the semi-official arbiter of these things, the Office of the Actuary at the Centers for Medicare and Medicaid Services. In fact, as Business Insider noted, the 9.9 percent spike is the largest three-month increase since 1980.

Who could have predicted that a recovering economy, higher incomes and a rise in the number of people with health coverage brought about by Obamacare would increase how much Americans are spending on medical care?

Well, pretty much anyone. And they did. Here's the Medicare and Medicaid actuaries in January, illustrating that spending would spike this year after several years of low growth, after which the rate of increase goes back down closer to historical levels.

health care spending
Note: ACA refers to the Affordable Care Act. SGR refers to the system that determines how much Medicare pays physicians. The Office of the Actuary assumed Congress would prevent scheduled cuts to doctors' pay, including a 24.7 percent reduction set to take effect Jan. 1., which it did.
Source: Health Affairs

The Congressional Budget Office expects federal health care spending to follow a similar trajectory, according to a report issued this month.

health care spending
Source: Congressional Budget Office

So what happened from January through March? The crazy-high prices Americans pay for health care didn't change much. Mainly, it seems that more people went to the doctor. Here's health care expert Larry Levitt, the senior vice president for special initiatives at the Henry J. Kaiser Family Foundation, to explain:

In other words, when people are broke or feel like they're broke, as many Americans did during the Great Recession and the lagging recovery, they spend less money on things they believe they can do without (or simply cannot afford). When people feel less broke, they start spending money on those things again. Likewise, people without health insurance don't get medical care they need, so when they get insurance, they might want to go see a medical professional.

Why should anyone even care? In one sense, greater spending on health care after the implementation of Obamacare suggests the law is succeeding at one of its goals: increasing access to medical care for the people who needed it. Extending coverage to tens of millions of people will increase health care spending by one-tenth of one percentage point each year over a decade, the Medicare and Medicaid actuaries projected in 2012.

But as with anything else, spending more money on health care means we have less money to spend on other things, and that applies to households, businesses and the government (which pays the bills for tens of millions of people on Medicare, Medicaid, subsidized private insurance and other programs).

Over the last several decades, health care has eaten up a greater share of our gross domestic product.

health care spending
Source: Health Affairs

That suddenly changed from 2010 through 2012, when national health spending increased at a slower rate than the economy for the first time since 1997. However, no one expected that slow-down to last. Overall spending and health care's share of GDP was expected to tick back up. Here's another illustration from the federal actuaries.

health care spending
Source: Health Affairs

These are all just projections and estimates, so reality could turn out to be very different, in either direction. Adding millions of people to the coverage rolls via private insurance or Medicaid, as the ACA appears to be doing, could boost spending by more than expected. Or the law's cost-saving mechanisms, which range from raw cuts to Medicare fees for health care providers to experiments designed to link payments to better-quality health care, could be more effective than expected.

Because everything with the words "health care" in it have been intensely politicized since 2009 when Congress started writing what eventually became the Affordable Care Act, every number that comes out has a tendency to be overanalyzed, and people on the left and the right have a tendency to draw grand conclusions from what can be pretty meager, preliminary information.

Case in point: Obama himself. The White House has been promoting analyses, both its own and from outsiders, that gave more credit to Obamacare for the recent slowdown in health care spending than the Medicare and Medicaid actuaries or lots of other experts. Now that the trend may be reversing, it's giving critics of the law an opportunity to say, "I told you so!"

It's going to be long time before anyone gets to say that and be sure they're right.

Around the Web

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Health Costs | The Henry J. Kaiser Family Foundation

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