The Dose

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Health Care & Life Sciences / Life Science & Biotech

Hey IU, someone has to pay for those health care jobs

September 18, 2013

Indiana University’s new 84-page report on employment at not-for-profit health care establishments in Indiana is an impressive piece of analysis, with lots of helpful data about the size and scope of the industry.
 
Too bad it gets one fundamental thing so wrong.
 
The IU researchers, as have many before them, approach health care jobs as if every one of them is an unmixed blessing to the Indiana economy. They report that from 1995 to 2011, not-for-profit health care organizations grew their workforces by 36 percent, while the rest of the workforce grew by only 2 percent.

Wages also grew faster than inflation, pushing overall payrolls at non-profit healthcare organizations up by 65 percent in constant dollars.
 
“At every turn, the health care industry was a significant and growing driver of economic vitality,” wrote Kirsten Gronbjerg and her team of IU grad students in the conclusion of the report.
 
At every turn? Really?
 
Have any of these folks noticed their health insurance premiums rising recently, or had to pay a significant portion of a medical bill? Most everyone else has.
 
Have they noticed that their pay—or at least the pay of their family members and friends—has been growing slower because health insurance, driven by ever-rising prices for health care services, has been gobbling up more and more of their compensation?
 
As I’ve explained before, health care is mostly an expense to the collective Hoosier pocketbook. It does not, by and large, add to our collective income.

Spending by Hoosiers on health care is a lot like our spending at grocery stores and gas stations—vital for residents to be able to work, but not necessarily a boon to the state economy. That’s because most of the money would have been spent here, anyway.
 
I’m not saying spending on health care is bad. Certainly, health care that extends our lives is worth a lot. Some estimates put it at between $100,000 and $300,000 per year, or even higher. A workforce that maintains higher levels of health for longer periods of time is, one would expect, a more productive workforce.

And that is an economic boost to the state.
 
But my point here is that every dollar spent on health care is a dollar not spent somewhere else in Indiana’s economy. And that spending costs jobs in other sectors of the state’s economy.
 
This point was completely overlooked by the IU researchers, whose work was funded by the Efroymson Fund and IU's Indiana Research Fund, which is partly funded by the Lilly Endowment.
 
Which is puzzling because there is decent research out there they could have cited. For example, 10 years ago, the state of Indiana commissioned a study by D.C. think tank Mathematica Policy Research on the economic impact of health care.
 
Mathematica modeled an interesting scenario: If health insurance premiums came down by 25 percent, what would be the impact on both health care jobs and non-health care jobs?

It was a particularly prescient experiment, since now nearly all hospital systems—who account for the largest chunk of health care spending and pass on big year-to-year price increases—are trying to cut their expenses by about 20 percent. And they're doing a lot of that cutting by cutting employees.

A 25-percent decrease in health care premiums would eliminate more than 19,000 health care jobs from the state, Mathematica found. But at the same time, the relief in costs on all other employers would help them grow, thereby creating nearly 84,000 jobs.

Yes, you read that right. Reducing health care costs would create jobs. In fact, it would create more than four new non-health care jobs for every health care job lost.

Let’s assume, just as a thought experiment, that the same ratio would work in reverse. That means for every health care job created, four non-health care jobs are not created.

And what did the IU researchers find? That not-for-profit health care jobs grew by 36 percent and everything else grew by 2 percent.

Do you think maybe, just maybe, there’s a connection between those two?

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