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Spike in health care spending not unexpected

Yesterday's news on health care spending, at least at face value, seemed discouraging -- but take a closer look at the details.
A sign at an Affordable Care Act outreach event in Los Angeles, California, September 28, 2013.
A sign at an Affordable Care Act outreach event in Los Angeles, California, September 28, 2013.
Yesterday's news on health care spending, at least at face value, seemed discouraging. The New York Times reported:

Health spending in the United States last year topped $3 trillion -- an average of $9,500 a person -- as five years of exceptionally slow growth gave way to the Affordable Care Act’s expansion of Medicaid and private insurance coverage, and as prescription drug prices resumed their sharp climbs, the government said Wednesday. Health spending grew faster than the economy in 2014, and the federal share of health spending grew even faster, as major provisions of the Affordable Care Act took effect.

If this seems like a reversal, that's because it is. The year before, health care spending grew at just 2.9% -- far less than the 5.3% increase recorded in 2014 -- and it allowed the administration to boast that efficiencies made possible by the Affordable Care Act had slowed health care inflation to unprecedented levels.
Yesterday's report pointed in the exact opposite direction, raising concerns about the ACA failing to get health care costs under control.
But before your uncle who watches Fox all day send you an all-caps email that says, "See? I told you 'Obamacare' is a disaster," I'd recommend some caution about what the data is telling us.
In this case, no one was especially surprised by the spike. The report from the Centers for Medicare and Medicaid Services noted, for example, “This rapid increase, which was the highest rate since 2002, was in part due to the introduction of new drug treatments for hepatitis C, as well as of those used to treat cancer and multiple sclerosis,” the administration said. The Times added that the new, highly effective treatments for hepatitis C accounted for $11.3 billion in new spending.
Just as important, if not more so, is the fact that 2014 -- the year covered in the report -- wasn't just any year for the American health care system. It was the first year in which the Affordable Care Act was fully implemented.
In other words, this was first year in which millions of Americans who didn't have coverage were suddenly able to receive medical care without fear of bankruptcy. It's a feature, not a bug -- more families were able to access care, and they did, which meant quite a bit more spending on health care than the year before.
The Huffington Post had a good report on this:

"The whole point of giving people insurance is so they have better access to health care, so it shouldn't be a surprise that health care spending went up a bit as more people got insured," said Larry Levitt, a senior vice president at the Henry J. Kaiser Family Foundation. "Most of the health care system is growing very slowly, the exception being prescription drugs." [...] "We've gotten so accustomed to saying health care spending is out of control and unsustainable, and our rhetorical language hasn't quite caught up with reality, because health care spending is not really out of control right now," Levitt said. "It's going up very slowly compared to what it used to be. In the '90s, double-digit increases in health spending were quite common. That's not true anymore."

The question isn't necessarily whether the raw expenditures are increasing -- as more people enter the system, increases are inevitable. Rather, what matters is whether the system is improving efficiencies and finding effective ways to limit costs without sacrificing quality of care.
And on this front, we've seen some evidence -- not overwhelming evidence, but some -- that the ACA is helping creating systemic improvements that will help control overall costs in the years to come.
All of this is good news, not bad. In fact, given the sudden influx of so many new consumers, it would have been easy to imagine an even larger increase in health spending and the fact that this didn't happen is heartening.
On balance, yesterday's report is noteworthy, but not cause for alarm, so go ahead and tell your uncle not to bother with that angry email.