April 2020 Health Sector Economic Indicators Briefs

Please note: to track the rapidly changing U.S. health economy in the COVID-19 environment, beginning in May 2020, we will be enhancing and refreshing our briefs.

Spending:  Health spending deceleration continues; Covid-19 impact is still to come. This release covers February 2020 data, before main Covid-19 effects.

• At $3.97 trillion (seasonally adjusted annual rate), national health spending in February 2020 was 5.5% higher than in February 2019. This spending rate puts us “only” $30 billion away from hitting $4 trillion.
• Health spending growth in February declined for the second consecutive month. Year-over-year spending growth peaked at 6.2% in December 2019 and stands at 5.5% in February. This month’s deceleration was led by hospital spending growth, which has dropped for 4 consecutive months from a peak of 7.3% in November 2019 to 4.9% in February. January hospital growth was 6.0%, year over year. The February 2020 nominal gross domestic product (GDP) growth over a 12-month period was 4.2%, and the resulting health spending share of GDP was 18.1%. While there may be a historic decline in health care spending, there is no question that the GDP decrease will be far larger, hence, it is a safe bet that the health care share of GDP will increase precipitously.
• Spending in February 2020, year over year, increased in all major categories. Spending on prescription drugs grew the fastest, at 9.4%. Growth in spending on home health care was the slowest, at 1.9%.
• The impact of the Covid-19 pandemic on health spending is likely to begin to reveal itself in next month’s spending brief, which will cover spending through March. Preliminary evidence suggests that there will be a decline in expenditures (or at least a further decline in spending growth) beginning in March because of a significant reduction in use of health care services that are not related to Covid-19.

Labor: First month of Covid-19 impact shows biggest drop in health jobs in at least three decades – this will likely be the first recession in modern U.S. history where health care hiring does not cushion the blow of economy-wide job losses.

• April jobs data are the first to show early effects of the Covid-19 pandemic on US employment. The health care sector lost 42,500 jobs in March 2020, the largest single month loss in our data series going back to 1990.
• Health care job losses were concentrated in ambulatory settings including physician offices, which lost 12,000 jobs, dental offices, which lost 17,200 jobs, and home health, which lost 5,900 jobs. Hospital jobs were essentially flat between February and March, at +200 jobs. Nursing and residential care lost 2,000 jobs.
• As discussed in our recent blog, unlike this time, health care has traditionally cushioned the blow of job losses during and immediately following economic downturns. Our data show how health care employment continued to grow in each of the past three recessions, although the rate of growth slowed during the Great Recession.
• We expect April data, to be released on May 8, will show greater job losses in ambulatory settings and initial losses in hospitals. The critical unknown, of course, is how many workers will be able to return given uncertainty about post-pandemic demand for care and provider finances.

Prices: Covid-19 impact delayed; health care price growth steady at 2% – Upward price trend continues but preliminary divergence between fast-growing retail prices and slow-growing wholesale prices.

• Health care prices in March 2020 rose 2.0% from March 2019, equal to the February annual rate.
• Year-over-year hospital price growth rose to 2.5% from 2.3% in February. Annual physician price growth was 0.8%, and annual drug price growth was 1.5% in March, the sixth straight positive reading after negative growth in 2019.
• The Medical Consumer Price Index grew at an annual rate of 4.7% in March, the highest growth since September 2016. This includes a huge 20.6% annual growth in health insurance, a function of an indirect estimator used by the Bureau of Labor Statistics that appears to be emphasizing the Health Insurance Fee that, while eliminated in 2021, was brought back to life for 2020. Insurer profits may also be playing a role. In contrast, the final-demand PPI growth dropped to 0.7%, its lowest rate since September 2016. Does this portend an environment whereby Covid-19 puts upward pressure on retail health prices and downward pressure on wholesale health prices?
• We have our first significant for-profit insurer data point with the release of first quarter 2020 earnings from United Healthcare, which topped analysts’ forecasts. Discretionary care was indeed down sufficiently to compensate for Covid-19 expenditures, at least through March.
• We are confident in saying that the longest economic expansion in U.S. history ended in March 2020, though the National Bureau of Economic Activity (the official arbiter) may wait a few months before its official declaration. Thus, we witnessed a recovery that lasted 128 months with a record 113 consecutive months of job creation.