ACA Spending to Mushroom : The Calm Before the Strom

To believe the Affordable Care Act will not increase spending is in the those famous words of wisdom of our former Senator from New York and Secretary of State, " to believe one must have a willing suspension of disbelief".

Adding 30 million new American recipients to the health rolls, untold millions of illegal immigrants and if that's not enough, billions in fraud and waste, will some how lower the cost of heath care? Really?

Has the ACA Slowed Health Care Spending Growth?
Source: Andrew J. Rettenmaier, Thomas R. Saving and Zijun Wang, "Has the Affordable Care Act Slowed the Growth of Health Care Spending?" National Center for Policy Analysis, July 2014.

July 23, 2014

Reforms in the Affordable Care Act are likely to increase health care demand and spending, write Andrew J. Rettenmaier, Thomas R. Saving and Zijun Wang of the Private Enterprise Research Center in an issue brief for the National Center for Policy Analysis.

The Centers for Medicare and Medicaid Services released data in January 2014 indicating that national health spending expenditures declined from 2009 to 2012, dropping from 17.4 percent of GDP to 17.2 percent of GDP. Pundits cited the news as evidence that the Affordable Care Act was slowing health care growth. However, the slowdown is one of several recent periods in which health care spending as a share of GDP has been relatively stable.

Additionally, an examination of health care spending as a share of GDP reveals that spending rose from 1960 to 1993, but began a stair-step rise thereafter, leveling off then rising again. So, the authors ask, are we in a permanent plateau or will spending move upward again? More recent data from the Bureau of Economic Analysis indicates that the recent 2009 to 2012 slowdown in health spending may, in fact, be reversing:

• Real per capita GDP growth from the first quarter of 2013 to the first quarter of 2014 was 0.8 percent, but real per capita health care spending grew at 2.2 percent.
• Preliminary estimates indicate that health care spending as a share of GDP will increase from 17.2 percent in 2012 to 17.4 percent in the first quarter of 2014.

The authors also looked to employment growth within the health care sector, finding that health care employment has continued to grow faster than the economy as a whole:

• From 1990 to the present, health sector employment grew at 2.5 percent per year, the highest rate among all industries.
• Health sector employment grew 3.3 percent during the Great Recession, while total nonfarm employment fell 5.4 percent from the peak to the trough of the recession. Employment in the construction and manufacturing industries fell a respective 19.8 percent and 14.7 percent.

Additionally, stock prices are a reflection of investors' expectations of future profitability, and the market is very sensitive to industry-specific events. Again, health care sector stocks have performed better, and have been less volatile, than stocks within the broader market:

• From January 1998 to the recession trough of June 30, 2009, the monthly total return in the health care sector was more than twice the average return of stocks in the S&P 500.
• The health care sector yielded monthly returns of 1.6 percent after the recession, while the S&P 500 monthly return was 1.4 percent.

These observations indicate that future health care spending is likely to outpace GDP growth.