There’s been an endless amount of speculation on how the Affordable Care Act will affect the real economy. Now we’re finally getting data to displace the guessing.
Consumer spending in January was restrained except for one obvious exception: Spending on healthcare soared. It will take a while for economists to sort out the details, but it seems clear that new enrollees in Obamacare, as the ACA is known, were responsible for a burst of visits to doctors and other healthcare providers.
Spending on services, which increased by an average of .17% per month in 2013, surged by 0.9% in January, or more than five times the 2013 rate. That was the largest monthly jump in spending on services since 1998. Higher costs for energy explain part of the jump, since the cold winter has pushed up utility bills. But Obamacare seems to be a much bigger factor, by far.
Measured another way, spending on healthcare rose by an estimated $29 billion from December to January, or 1.7%, after adjusting for inflation. “The strength in this report was on spending in healthcare,” says economist Chris Christopher of forecasting firm IHS Global Insight. “We’re not seeing strength elsewhere.”
That spending, it’s important to note, does not include insurance-premium payments, which belong to another category. So the increase in healthcare spending mostly reflects actual care Americans are receiving. Meanwhile, there wasn’t much change in spending on health insurance in January, Christopher says, despite many anecdotal reports of Americans who had cheap policies that got canceled toward the end of 2012 because those policies didn’t comply with new ACA rules. Many of those people had no choice but to buy a more expensive policy. But if the aggregate spending numbers relating to health insurance withstand future revisions (which sometimes overturn preliminary estimates), it will suggest the ACA is helping more people obtain healthcare without a big jump in overall insurance spending.
Nothing is free
Nothing’s truly free, of course, and the new numbers show that government subsidies associated with Obamacare rose in January as expected, helping Obamacare enrollees pay for their newfound coverage. Two different types of Obamacare subsidies juiced incomes by about $34 billion in January, accounting for about three-fourths of the total increase in income, according to J.P. Morgan Chase (with the rest coming from old-fashioned wage and salary gains).
Increased health spending and more doctor visits don't necessarily mean Obamacare is working as intended. Enrollment so far has been disappointing, with just 4 million people signed up, according to the Obama administration. For the program to meet its economic and cost targets, an estimated 7 million or so need to sign up the first year. There appears to be a particular shortage of young and healthy people, which the program needs in order to spread costs more or less evenly.
Meanwhile, some people who sign up for Obamacare aren’t following through and paying the premiums they now owe. And technical problems with the federal healthcare.gov website may still be complicating signups for some people.
Still, the extent to which Obamacare succeeds or fails will be one of the most important issues of 2014. Control of Congress could swing fully to Republicans during the November midterm elections if the program’s weak reputation doesn’t improve. Thousands of businesses, meanwhile, are waiting to see whether Obamacare will push up their costs, as critics have warned. And in the healthcare industry, the race is on to capitalize on a windfall of new patients seeking care, drugs and better healthcare information as they become active participants in the medical system. That part seems to be panning out.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.