Health Care Spending Spikes: Why?

Recent data from the Bureau of Economic Analysis (BEA) reveals that  during the last three months of 2013, spending on health care rose at an annual rate of 5.3%. The trend continued this year, with spending climbing 6.2% on a year-over-year basis in January and 6.7% in February. Now some of Obamacare’s fiercest critics are saying “I told you so.”

“We knew this was coming,” gloats Douglas Holtz-Eakin, John McCain’s former economic adviser. “The question now is whether we can hold spending down.” It’s worth recalling that Holtz-Eakin, who served as CBO director under George W. Bush, has been wrong in the past. When I debated him on the Lou Dobbs show in 2009 he insisted that the ACA would leave us with a “ton of debt.” In fact it has reduced the deficit. And in March of 2013 when testifying before the House Energy and Commerce Committee’s Subcommittee on Health Holtz-Eakin had the chutzpa to declare that “There is anecdotal evidence, of [Exchange] premiums nearing $100,000 in New York.”  This was, of course, utter nonsense.

Still, the surge in spending came as a surprise. Since December of 2007, after adjusting for inflation, health care outlays have been rising by only 2.6%  “The sudden jump has led some some commentators to declare an end to the era of slower health-cost increases, which has lasted for the past several years,” observes former CBO director Peter Orszag observes.  Yet, Orszag notes, “Medicare spending growth is still low, even through last month. Indeed, in the first half of this fiscal year, nominal Medicare spending was only 0.6 percent higher than in the corresponding period a year earlier.”

Why Have Outlays Risen for Those Under 65, But Not for Seniors?

BEA suggests that the jump during the first two months of this year reflects the fact that, thanks to the Affordable Care Act (ACA),  more Americans had comprehensive insurance that gave them access to a wide range of services.

Those who became insured in January and February are the folks who signed up at the very beginning of the enrollment period. No doubt many of them had been postponing needed care for a long time. As soon as they were covered, they began visiting doctors, scheduling elective surgeries, and filling prescriptions. Medicare patients, by contrast, had no reasons to seek more care at the beginning of 2014. Their insurance had not changed.

Going forward, won’t the fact that more Americans are insured mean that health care spending will continue to climb?  “No”, says  Larry Levitt, a senior vice president at the Kaiser Family Foundation (KFF). This “will be a one-time bump in health spending.”
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