Will Health Care Spending Improve by 2014’s End?

An October 2014 installment of the New England Journal of Medicine (NEJM) reported discrepancies in health care spending trends based on the Bureau of Economic Analysis (BEA) comparative 2013 and 2014 data. Although the BEA noted a marked gain in the first quarter of 2014, a second look two months later found that health care spending actually had dropped. The NEJM questioned how it could be that health care expansion had little effect on health care spending.

Calculation Method

The initial May 2014 BEA report realized a 10 percent gain, but the reassessment showed a spending loss of 0.9 percent. The NEJM noted that the discrepancy may have occurred due to the types of methods used to calculate the spending growth rates. Spending in the first quarter of 2014 was compared with spending in the fourth quarter of 2013, and the percent change was compounded to convert it to an annual rate. The NEJM noted that other methods could produce different outcomes.

Enrollment Conditions

The BEA and CMS projected growth in health care spending (CMS 5.6 percent; BEA 6.3 percent) attributed to the Patient Protection and Affordable Care Act (ACA) (P.L.111-148) and the improving economy, but BEA reported expanded coverage had little effect on health care spending in the first quarter of 2014. The NEJM attributes this to the fact that “many ACA enrollments occurred toward the end of the quarter and even people who enrolled earlier did not begin spending health care dollars right away.” The NEJM also points to the harsh winter conditions of 2013.

Economy

The NEJM further reports that despite the close tie between long-term health spending and economic growth, sudden economic changes, such as the recession rebound, are slow to impact health care spending. The BEA compared two potential economic growth scenarios: (1) the estimated growth path for a situation in which the recession did not occur; and (2) the estimated growth path for a situation in which health care spending responded immediately to the recession. The BEA found that the no-recession scenario assumed a “continuation of pre-recession real per capita economic growth,” while the second scenario showed a downward trend on health spending.

Nonetheless, the NEJM says that prescription drug costs and use, higher patient volumes, and continued expansion of health care benefits through the ACA will increase health care spending by approximately 5 percent.