That surge is attributed to the implementation of President Barack
Obama's signature healthcare law, the Affordable Care Act, also
known as Obamacare. Because of Obamacare, the nation narrowly
avoided its first decline in output in three years.
"GDP growth would have ... been negative were it not for healthcare
spending," said Harm Bandholz, chief economist at UniCredit Research
in New York.
Healthcare spending increased at a 9.9 percent annual rate, the
quickest since the third quarter of 1980, and it contributed 1.1
percentage points to GDP growth.
The economy expanded at only a 0.1 percent rate in the first
quarter, held back by a drop in exports and business investment,
which economists attributed to a harsh winter. A sharp slowdown in
the pace of inventory accumulation was also a drag.
The gauge of healthcare spending published on Wednesday is simply an
estimate based on Medicaid benefits, ACA insurance exchange
enrollments, and other related information. Firm data will not be
available until June, and the government could well revise its
figures for both healthcare and overall GDP.
About eight million people have so far signed up for healthcare
insurance under the law, and the jump in healthcare spending had
already been flagged in the government's monthly income and consumer
White House economic adviser Jason Furman said the increase should
not be a cause for alarm.
"Any upward pressure on healthcare spending growth from expanding
insurance coverage will cease once coverage stabilizes at its new,
higher level, so it does not affect the longer-term outlook for
spending growth," he said in a statement.
coverage for residents who previously did not have health insurance,
as well as subsidies to those who cannot afford monthly premiums.
These transfers are helping to free-up income and more people are
making visits to hospitals.
[to top of second column]
Economists said both the subsidies and hospital visits were
contributing to the surge in healthcare spending.
"You have those two separate things that are working; the challenge
is we don't know the split between newly insured and previously
insured," said Alec Phillips, an economist at Goldman Sachs in
Healthcare spending could rise again in the second quarter, but
probably not at the first-quarter's rapid pace.
Through February, estimated personal income from Medicaid and other
social benefits — the category where the tax subsidies through the
health exchanges show up — was running ahead of the actual increase
in healthcare consumption.
"That kind of implies that there may be at least a little bit more
in terms of growth in health consumption from essentially those new
benefits that have been provided," said Phillips. "With that said it
also implies that we have probably seen a decent amount of it
Government transfers, including health insurance premium subsidies,
boosted personal income in the first-quarter.
(Reporting by Lucia Mutikani; editing by Andrea Ricci)
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