It was Obamacare Stupid! Wednesday’s news that the U.S. GDP fell at a seasonally adjusted annual rate of 2.9% for the first quarter of 2014 was a giant leap from the previous estimate of a 1% contraction. The biggest reason for the fall was healthcare spending. Yes America another unintentional consequence of the President’s signature piece of legislation.
“Two thirds of the revision is in consumption, cut to +1.0% from +3.1%,” said Pantheon Macroeconomics Ian Shepherdson. “Almost all of this huge hit is in the healthcare services component, cut to -1.4% from +9.1%.”
According to the BEA [Bureau of Economic Analysis ], healthcare spending went from adding 1.01 percentage points to subtracting 0.16 from the headline GDP growth number.
The Administration has been hawking the Idea that Obamacare would drive an increase in GDP. During the April 30th press briefing Jay Carney promoted that theory:
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The fact of the matter is and the GDP report makes it clear that it is consumer spending on healthcare that helped drive economic growth in the first quarter and that is directly related to the increase in people who have insurance because of the Affordable Care Act we also saw, and this has been misunderstood and therefore misreported that healthcare inflation which is a different animal from healthcare spending, healthcare inflation remained historically low. What that means is more people are buying a product or spending money on a product but the cost of that product, the increase in the cost of that product remains at an historically low level.
After today’s announcement some derided that Administration theory:
“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.”
Breaking down the Healthcare changes during Obamacare’s first quarter since implementation vs fourth quarter 2013:
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 original estimates of spending increase. In other words they believed the Obama Administrations propaganda.
“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 $37 billion for 2014Q1 (in current dollars). The QSS data now available does not show this same increase,” the spokesman said.
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. In the end it is another example of what happens when the government tries to run a big chunk of the economy.