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Life Health > Health Insurance

Health spending shot up in second quarter

By Victoria Stilwell

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(Bloomberg) — Spending on health care services increased in the second quarter after falling in the first three months of the year, according to a report from the Census Bureau that the government uses to fine-tune its estimates of economic growth.

Revenue at health care providers unadjusted for seasonal swings or price changes rose 3 percent from the first quarter, today’s quarterly data on service industries showed. Sales were up 3.7 percent from the year before.

The health spending increase may alter economists’ estimates for second-quarter gross domestic product, as they incorporate the new data into their calculations. The economy grew at a 4.2 percent annualized rate in the second quarter, according to the Commerce Department’s second estimate, issued Aug. 28.

“We have more people enrolled in the health care system, so spending should generally be stronger,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research, referring to the effects of the Patient Protection and Affordable Care Act.

Today’s figures, in addition to other data that have become available since the end of August, will be used to revise growth estimates again in the Commerce Department’s next GDP report, slated for Sept. 26.

The Census Bureau’s previous Quarterly Services Survey showed a decline in spending on health care services, prompting the Commerce Department to revise down its third GDP estimate for the first quarter. The agency lowered its estimate to a decline of 2.9 percent at an annualized rate from a previously reported 1 percent decrease. The final estimate showed the economy shrank 2.1 percent.

Stronger spending

“There is good reason to believe that with the [Patient Protection and] Affordable Care Act officially in place, spending will be noticeably stronger going forward,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc., wrote in a note to clients yesterday. “In fact, this is exactly what the Centers for Medicare and Medicaid Services is projecting over the next couple of years.”

Other figures confirm that spending fared better in the second quarter. Fifty-four health care companies in the Standard & Poor’s 500 Index posted aggregate revenue growth of 12 percent in the three months ended in June from the year before, according to data compiled by Bloomberg. That compares with a 7.5 percent increase in sales in the first quarter.

The quarterly services report, which was first released in 2004, is available about 75 days after the end of each quarter, according to the Census Bureau. The sample includes about 5,000 service providers in industries including hospitals, waste management, and administrative and support.

While the report is “fairly new and not well known yet,” it’s used to re-estimate about 20 percent of GDP, particularly health care services, Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, wrote in a Sept. 9 note to clients.

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