We Just Saw The Biggest Explosion In Health-Care Spending In Over 30 Years, And It Had A Big Impact On GDP

Spending on health care grew an astounding 9.9% in the Bureau of Economic Analysts’ advance estimate of first-quarter GDP.

It’s the biggest per cent change in health-care spending since 1980, when health-care spending jumped 10% in the third quarter. Analysts said it’s primarily due to a consumption boost from the implementation of the Affordable Care Act. Adjusted for inflation, America is spending more on health care than ever.

Personal consumption grew by 3.0% — about half of which was due to the growth in health-care spending, said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

If health c
are spending had been unchanged, the headline GDP growth number
would have been -1.0%,” Shepherdson said.

A BEA spokesperson said the uptick “reflects additional spending associated with the implementation of the Affordable Care Act.”

The first-quarter advance estimate reflects spending from January through March, the first three months when millions of people who gained insurance by signing up on exchanges established by the law or by qualifying for Medicaid coverage under the program’s expansion.

Jared Bernstein, the former chief economist to Vice President Joe Biden and now a senior fellow at the Center on Budget and Policy Priorities, speculated the growth was more likely associated with the Medicaid expansion at this point.

Sign-ups through the exchanges exploded in March, the last month of the first open enrollment period. Of the more than 8 million people who eventually enrolled in insurance plans, nearly half signed up in March or in a special two-week extended period in April. This means the uptick in health-care spending could be even bigger next quarter.

The detailed consumption data in the advance GDP report display that spending on doctors and hospital services both began to rise rapidly last fall, when the law known as Obamacare was implemented.

“Both are now running at more than twice their pre-Obamacare trend, indicating that pent-up/hidden demand for healthcare was huge,” Shepherdson said.

“Next question: How long will it last?”

Here’s a chart from Pantheon that shows the growth over the past year in spending on doctor and hospital services, the two factors that dominate the health-care portion of GDP:

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