Why That Huge Explosion In Health Care Spending Might Have Been A 'Mirage'
In Wednesday's advance estimate of first-quarter GDP, health-care spending exploded to its highest levels in more than 30 years. But the jobs report Friday revealed no significant uptick in employment.
Former OMB Director Peter Orszag first pointed this out on Twitter: For both spending to have exploded with health-care employment growing at an average pace, it would mean an absurd boom in in health-care productivity.
Here's the chart Orszag posted on Twitter:
"Employment is barely moving in health care," Orszag told Business Insider in a brief phone interview Friday. "So the implication of that is either we're experiencing a boom in productivity growth, because output is increasing much more rapidly than employment. Or the preliminary GDP numbers might be revised down, and so this whole thing may be a bit of a mirage."
The GDP numbers have been seized on by critics of the Affordable Care Act, and interpreted to mean that the record-slow growth in health-care spending was coming to an end.
With a more complete picture now, though, Orszag said the type of productivity increase is not very plausible. Health-care employment grew by about 19,000 in April, which was about in line with the previous 12-month average of 17,000.
What Orszag thinks it might come down to is a flaw in how people interpret the uptick in GDP numbers, given how they are calculated. For example, once someone qualifies for Medicaid, that counts as an increase in both their income and spending, even if they don't actually consume health-care services, Orszag said. About 4.8 million qualified for Medicaid coverage through the program's expansion under the Affordable Care Act, the White House said Thursday.
Jared Bernstein, the former chief economist to U.S. Vice President Joe Biden and now a senior fellow at the Center on Budget and Policy Priorities, had also speculated that the GDP growth was more likely associated with the Medicaid expansion at this point.
"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 said. "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."