Healthcare spending plunged in the Bureau of Economic Analysis’ latest estimate of first-quarter GDP growth, accounting for two-thirds of the revision that tumbled overall growth to -2.9%.
In the BEA’s first estimate of first-quarter growth, healthcare spending was projected to explode by 9.9%. It was subsequently revised to 9.1%. But the latest estimate had healthcare spending plunging to -1.4%.
“So much for the BEA’s initial view that the start of Obamacare triggered a surge in spending on healthcare,” Pantheon Macroeconomics’ Ian Shepherdson said. “The press release offers no detail on what triggered this massive revision.”
So what triggered that massive revision? The BEA told Business Insider the revision was based on a new set of data from the Commerce Department’s quarterly services survey.
That survey provided a few important data points: Healthcare and social assistance spending, overall, plunged 2%. Revenue for hospitals (-1.3%), medical labs (-6.4%), and outpatient care (-3.6%) all fell in the first quarter of 2014 when compared to the final three months of 2013.
A BEA spokesman said the agency had previously used “information on Medicaid benefits and on ACA insurance exchange enrollments as well as other available data” to determine the spending increase.
“These data sources suggested a relatively large increase in health care spending. Based on these data sources, we had assumed that ACA related effects boosted consumer spending on healthcare services by about $US37 billion for 2014Q1 (in current dollars). The QSS data now available does not show this same increase,” the spokesman said.
Among the first to convey scepticism about the BEA’s initial estimate was Peter Orszag, the former OMB director. His argument: For spending to have exploded with healthcare employment growing at an average pace, it would mean an incredible boom in in healthcare productivity.
“It would mean that somehow we’re able to produce so much more health care with each worker, in a dramatic fashion, starting magically with the fourth quarter of last year,” Orszag told Business Insider in May. “OK, maybe? It’s just not really plausible. If all of this were real, it would mean that suddenly, magically, health-care workers have become a lot more productive.”
Orszag recently posted a chart on Twitter (below) showing the BEA’s initial advance estimate didn’t square with the QSS data released Wednesday. He suggested at the time it likely meant healthcare spending will be revised downward.
Though analysts suggested the data was subjected to revision, few could’ve predicted such an incredible swing. Jason Furman, the chairman of the White House’s of the Council of Economic Advisers, said it’s the biggest revision in roughly 30 years.
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