Is Obamacare Bad For US Economic Growth?
Following the rather stunning shenanigans of Q1 GDP with regard healthcare spending (as we detailed here), we thought, four years after its passage in 2010, it worth analyzing Obamacare's economic impact? Beforehand, economists generally believed that the broader coverage would raise the demand for healthcare goods and services, although there was some disagreement about related effects on healthcare inflation. In reality, as UBS notes, there was too much optimism about a positive immediate economic impact and a negative price inflation effect.
Via UBS' Maury Harris,
Statisticians at the Bureau of Economic Analysis (BEA) initially were far too optimistic about what expanded healthcare coverage would immediately mean for U.S. economic activity. When calculating their first estimate of Q1(14) real GDP growth at the end of April, the BEA assumed a 9.1% annualized rate of increase in healthcare services consumption—one-ninth of overall real GDP. However, with more complete information, the BEA now reports a 1.4% decline in such spending. That was enough to trim 1.2 percentage points from earlier estimated annual real GDP growth. According to the BEA,
"The revision to health care services reflected the incorporation of newly available Census Bureau quarterly services survey (QSS) data for the first quarter. The QSS data reflect the revenues for-profit and nonprofit hospitals, physician offices, nursing homes, and other health care providers and the expenses of nonprofit hospitals and other nonprofit health care providers. Prior to receiving the Census QSS data, BEA used information on Medicaid benefits and on ACA insurance exchange enrollments to prepare the previously published estimates of health services."
Does American public see any effects from ACA?
Considering government statisticians' struggles in trying to measure what the ACA is doing to the economy, it is useful to ask if the American public thinks it is making much difference in their lives. A Gallup poll conducted on May 21-25 asked the following question: "As you may know, a few of the provisions of the healthcare law have already gone into effect. So far, has the new law helped you and your family, not had an effect, or has it hurt you and your family?" 14% felt it was helpful, a larger 24% responded that it was not helpful, and 59% cited no effect.
A subsequent Bloomberg National Poll on June 6-9 asked a somewhat similar question: "Since the healthcare law went into effect on January 1st of this year, have you experienced a big change, a little change, or no real change in your health care?" A big change was reported by 24% of respondents, little change was reported by 15% of the respondents, and no real change was cited by 60% of the respondents.
While the ACA implementation has not yet made much difference for most Americans, has it influenced their sense of longer-term security—one key to longer-term saving trends? From a behavioral perspective, more secure households should save less and less secure households should save more. The May 21-25 Gallup poll asked this question: "In the long run, how do you think the healthcare law will affect your family's healthcare situation? Will it make things better, not make much difference, or will it make things worse?" 36% responded "worse" versus 22% responding "better".
So far at least, the ACA does not appear to be a longer-term net confidence booster.
Earlier sharp slowdown in healthcare inflation was unsustainable
In addition to consumption and confidence impacts, the ACA potentially influences healthcare costs. The slowdown until recently in the y/y change in the core personal consumption expenditures (PCE) chain price index inflation was partly attributable to slower healthcare inflation. Economists debated whether the ACA should receive any of the credit, with doubters citing earlier instances where healthcare inflation slowed only to subsequently pick up.
Over the three months through May, healthcare goods and services prices accounted for around 43% of the 40 basis point re-acceleration of core PCE price inflation.
With the y/y change in the hourly employment cost index (ECI) for hospital workers up 1.7% in Q1(14), it is hard to see labor-intensive healthcare services prices rising by much less for any sustained period.
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In summary - Yes, Obamacare is bad for the US economy
But apart from massive over-optimism, and negative impacts on confidence and consumption; we are sure the voting public will get behind the man who instigated all of this...
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