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Unexpected Drop in Health Care Spending Causes 2.9% Decline in GDP

An unexpected drop in health care spending -- combined with other factors -- caused the overall gross domestic product to decline by 2.9% in the first quarter of 2014, according to the Department of Commerce's final quarterly GDP estimate, New York Times' "The Upshot" reports (Irwin, "The Upshot," New York Times, 6/25).

The overall drop in GDP was almost three times steeper than the DOC's May estimate for the first quarter, and well below an April forecast of a 0.1% increase in GDP, Bloomberg Businessweek reports.

About two-thirds of the decline in GDP, which is used to measure the health of the U.S. economy, was driven by lower-than-expected health care spending, National Journal reports (Berman, National Journal, 6/25). Shrinking business inventories and poor winter weather also contributed to the decline in GDP ("The Upshot," New York Times, 6/25).

Health Care Spending

The "big surprise" for the quarter was the decline in health spending, Bloomberg Businessweek reports. The Bureau of Economic Analysis' analysis found that health care spending declined by 1.4%, which was far lower than the estimated 9.9% increase that government statisticians first predicted. Overall, health care spending was $6.4 billion lower in the first quarter of this year than in the last quarter of 2013 (Philips/Tozzi, Bloomberg Businessweek, 6/25).

According to Vox, the data suggest that health spending declined as access to care increased and more people became insured under the Affordable Care Act. However, it is unclear how much of the slowdown in spending is related to changes under the ACA.


Peter Orszag, a former director of the Congressional Budget Office and of the Office of Management and Budget, said, "Overall, the health care news is phenomenally good." He added, "The supposed acceleration in health spending has been shown to be false" (McIntyre, Vox, 6/25).

However, Jason Furman -- chair of the White House Council of Economic Advisors -- noted in a White House blog post that health care spending likely could accelerate again in the coming quarters, when "the millions of people who gained health insurance coverage during the [ACA's] first open enrollment period begin to use their new coverage" (Bloomberg Businessweek, 6/25).

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