CHICAGO—The never-ending and ill-informed debate in Washington over defunding Obamacare has almost entirely drowned out public understanding of the law's positive impact on the economy.
We're only a few months away from millions more Americans having healthcare coverage—assuming the Republicans' Tea Party faction on Capitol Hill fails at its effort to bring the government to a standstill and the broader economy with it. That additional spending should provide a real shot in the arm for the general economy next year.
That welcome news was contained in the latest healthcare spending projections from the actuaries at the Centers for Medicare & Medicaid Services (CMS). After four straight years where healthcare spending grew by less than 4 percent in nominal terms (that's about 2 percent after inflation is taken into account), spending on healthcare next year is expected to surge 6.1 percent, which means a doubling of the real rate of growth in the sector that accounts for 17.9 percent of the overall economy (only government is larger).
The reasons for next year's uptick are plain enough. With 11 million Americans slated to gain health insurance coverage either through the new health insurance exchanges or Medicaid, “the use of goods and services among the newly covered is expected to contribute significantly to spending increases,” the report noted.
And 2015 will be no different. Another 8 million previously uninsured people will gain coverage. Moreover, the pace of the economy's recovery is expected to pick up—in part because of increased healthcare spending.
Does that mean the healthcare cost control measures contained in the Patient Protection and Affordable Care Act (ACA) are a failure? The jury is still out on that question.
And while the actuaries should be counted among the skeptics, even they admit the trend is positive. If one compares their recent long-term projections, the actuaries now see healthcare growing to 19.9 percent of GDP by 2022, whereas four years ago—about the time the ACA passed—the actuaries said they believed spending would reach that level by 2018.
The shifting composition of spending revealed in the report was revealing. The people obtaining coverage under the expansion generally will be younger and healthier, so they will be seeing doctors, not going to hospitals. Hospitals are projected to receive only 4.7 percent more revenue next year, a smaller bump than three out of the past four years. Physician spending, on the other hand, is expected to grow by 7.1 percent, more than three percentage points higher than 2013.
In the long run, this shift in spending should be a net positive for those seeking to keep healthcare costs in check. People who see doctors regularly receive more comprehensive preventive care and get earlier treatment for hypertension, high cholesterol and elevated blood sugar, which if left untreated can lead to much more expensive-to-treat chron-ic conditions such as heart disease, diabetes and kidney failure.
There are shifts under way on the payer side because of the reform law, and they also should provide a boost for the economy next year. While Medicare spending will stay tame because of budget cuts—it will be only 5.1 percent or a full percentage point below overall spending—private insurance payments will surge 7.7 percent, up from 3.4 percent growth in 2013 and a full percentage point above the trend of the past decade. Medicaid spending will also surge—at least in those states expanding the program.
The big winners among payers will be the people who will soon be insured and no longer have to pay for emergency healthcare out of their own pockets. Their savings will more than offset the increased out-of-pocket expenses many people are now experiencing because employers are shifting to high-deductible plans.
Out-of-pocket expenses for all Americans are slated to decline 1.5 percent next year, according to the actuaries. That means more money will be freed up to spend in other sectors of the economy.
So let's sum up: The “evil Obamacare” is keeping Medicare spending in check. Those savings, rather than being used to reduce the deficit, are being shifted through subsidies to increase private insurance companies' spending on healthcare, which is a hidden stimulus. That improved coverage will also put more money in peoples' pockets to spend on other things.
That adds up to a win-win for healthcare and for the economy next year. Someone should tell House Speaker John Boehner the news.
Merrill Goozner is editor of Modern Healthcare, a Chicago-based sister publication of Tire Business. This column appeared in the magazine's Sept. 23 print edition, prior to the shutdown of the U.S. government at midnight on Oct. 1.