Posted by Timothy McBride on Thursday, May 1, 2014 Under: ACA
[UPDATED 630 am Central, 5/1; updated May 2, 3 pm to include link to new Altarum report]
The first quarter 2014, gross domestic product (GDP) numbers were released Wednesday April 30, and other than the report gaining headlines for being so dismal (largely attributed to the terrible winter weather), the other big headlines were for the large increase in medical care utilization (9.9% annual rate, even when medical inflation rose only 0.1%).
Certainly it WAS EXPECTED that the total health spending in the country would rise as the Affordable Care Act (ACA) was implemented in January 2014, and many millions started to get health insurance coverage. However, here are a few observations:
- health economists all have been predicting that health spending would go up when millions of people obtain health insurance, some of them for the first time (ever, or in a long time);
- the projections of the increase that got a lot of attention back in 2011 were estimates by CMS' Actuary Richard Foster, who did project an increase in health spending in 2014 and beyond, but CMS projected only a relatively modest increase of $50 billion in 2014;
- despite this, others apparently did predict fairly large increases in the first year, even in the range as reported today ; as shown in the article projections by some were in the 6-7% annual range).
- And recent reports by Altarum in the latter part of 2013 also were showing some growth in health spending in that range as well. Altarum also recently released its latest update for March 2014, containing their estimates of spending growth through March 2014, and they are showing growth of 6.7% in February 2014 and 6.2% in January 2014 (not adjusted for inflation, which they estimate to be running about 1-1.2% now, so real spending (utilization) is up about 5-5.5% in 2014, much smaller than the GDP figure. Notably Altarum was showing significant increases in spending growth in late 2013 as well (increasing from a low of about 3% to 5% or so by the end of the year. So they conclude that there are underlying trends in the medical care sector, not all related to the ACA.
So, given all this what to make of the first quarter GDP results? Two major, important points:
- it should always be said that the first release of GDP data is often "messy", requiring revisions later, and it would not be at all surprising if these numbers were revised (down or up); also, given the weather problems the problems obtaining data may have been even worse this time around.
- but perhaps most important: reports are that the Bureau of Economic Analysis based its estimates of the ACA effects in the GDP on Medicaid numbers either entirely or mostly.(thanks to my colleague Jenny Kenney from the Urban Institute, and Len Nichols for finding this one). If so, this could further skew the early estimates, because of course the Medicaid folks face few copays and deductibles and perhaps the ones seeking health care in the first quarter were the most chronically ill, most unhealthy. A note I just received said that it will not be until June that private health plan data will be incorporated into the GDP data.
This all said, a few more things must be said about this 9.9% annual increase in health utilization figure:
- if it holds up, then it shows that in fact there are many people who obtained health insurance right away in 2014, which contradicts all the nay-sayers who have been saying that the ACA has not led to an increase in coverage;
- this of course implies that advocates for the ACA, who have been predicting (and hoping) that many of the uninsured gained coverage must also accept or even embrace results like this;
- either one side is right or the other! (there was no net increase in coverage, but if so, then these numbers will be revised downward; or there was a big increase in coverage (with the resulting increase in demand/use of medical care).
- my guess? I expect the number will eventually be revised downward, to perhaps 5-7% annually once Commerce has some private plan data. And that is just a hunch, probably informed as much based on prior estimates from CMS, and recent work by Altarum and others, and the fact that ACA enrollment has been fairly robust.
Finally, if these results indicate that many of the newly-insured ran out right away and obtained medical care (a pent-up demand effect), then it could also be explained not just by a moral hazard effect (price of medical care falls, use rises), but of evidence of adverse selection among the previously uninsured and those first to obtain coverage (which is of course possible, because evidence exists that they were the first to sign up for the Marketplaces and Medicaid). (Thanks much to my friends and colleagues, James Burgess and Dennis Shea for reminding me of how these two effects interact.)
[Last edited, 5/1, 12:15 pm]
[Last edited, 5/1, 12:15 pm]
In : ACA
Tags: "moral hazard" spending