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Policy: Economy

Health care spending growth nearly flat in second quarter, BEA says

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Beltway Confidential,Opinion,Philip Klein,Obamacare,Health Care,Economy,GDP

Health care spending was nearly flat in the second quarter, growing at a mere 0.7 percent rate, according to data released on Wednesday from the Bureau of Economic Analysis.

To be sure, it's worth taking the BEA's initial estimate of health care spending with a grain of salt, as it's subject to revision and the numbers can often swing dramatically.

The initial first quarter estimate was that health care spending soared by 9.9 percent, which would have been the fastest rate of growth since 1980. After further revisions BEA data now show health care costs actually shrank by 1.4 percent during the quarter — the deepest contraction since 1982.

But this report is interesting for another reason, which could be significant if the numbers hold and it's representative of a longer trend.

The report also said that gross domestic product grew 4 percent in the quarter, after shrinking in the first quarter.

Health care spending has been growing at a relatively slow rate for several years now, and there has been a raging debate within the policy community as to whether the slowdown had more to do with the broader slowdown of the economy or was part of a longer-term trend. This theory assumed that as the economy picked up steam and people gained coverage through President Obama's health care law, that spending would start to pick up again.

Last quarter, the economy shrank by 2.1 percent overall, so that was still consistent with the theory linking economic growth and health spending.

But the first data from this quarter show that GDP grew robustly while health spending was nearly flat. If these numbers hold and this trend continues, it would work against the theory that health spending would rise once growth picks up. It's also worth noting that millions of Americans had gained coverage through Obamacare by the April-through-June period that the second quarter represents.

If there were actually a consistent trend echoing this report — strong economic growth easily outpacing health spending — it would really do wonders for the nation's fiscal outlook, which has been particularly bleak due to assumptions of tepid economic growth and an acceleration of health spending. Of course, it's a rather big "if." But worth keeping an eye on.

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Philip Klein

Commentary Editor
The Washington Examiner

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