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

September 18, 2013
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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?

  • Facts & Figures...
    While I agree changes need to be made in healthcare and everyone should have as many facts as possible to make good healthcare decisions. Having facts in the correct context is essential. Noting a study done 10 years ago prior to the 2008 recession where jobs were lost and using that in determining that 84,000 more jobs would be created in the current economy is a bit of a stretch. Employers are doing more with fewer employees even though the stock market is at record levels. Another bit of information missing in a study done circa 2003 is that everyday since January 1, 2011 10,000 baby boomers will retire EVERY DAY until 2030. Having an ever increasing aging population, who in general require more healthcare services does not match the trend of reducing capacity of staff in healthcare institutions to provide services to those populations. Healthcare is expensive, but if you analyze the profit margins of healthcare systems to that of For Profit insurers who negotiate discounted reimbursement to providers and healthcare systems, you will find the executive suite, corporate profit margins and shareholder profit are signicantly different. How is it that the middle man seems to be making the largest profit...??? Take in a lot up front (from you and I) for premiums and pay less on the back side to providers... Why do you think healthcare reform limited insurers profit to 20% of admininstrative expense... maybe there was a problem. As for providers, having the best providers is like any other industry, they want to get paid for their talent & skill. Remember just because a doctor graduated from medical school doesn't mean thay were all on the deans list. pepole choose to purchase a BMW 740 over a 2001 Ford Escort becasue the quality and performance are supposed to be better.. my guess is they would have that same mentality for cancer treatment or heart surgery... Do you want 10 year old technology and advancment intreatment or do you want the latest and greatest? Obviously one cost more than the other... Just like a mechanic, you go to them when you have a need, and it takes a certain skill to address your need. Otherwise there would not be a reason for either of these professions to exist. Yes healthcare needs a re-boot, but providers don't get paid for only talking to patients instructing them on ways that they can adjust there lives to be healthy. And really how many people really listen anyway... Indiana is in the top 10 for most obese states is that the doctors fault or personal accountability... lets not be hypocrites, we need to own some of this ourselves too.
    • To Facts & Figures
      I hear you on citing a 10-year-old study. I just know of nothing else like it that has been done, focused on Indiana, since then. Also, my point in this post isn't to suggest that health care consumers aren't getting BMW quality for their money. It's merely to say that a study that suggests that because BMW car dealerships have been hiring so many more people, the car dealerships are a boon to the Indiana economy, ignores the fact that the car dealerships only prosper because there is wealth created by other parts of the economy. The same is true for health care providers. I wouldn't want to live in a community without them, but let's not fool ourselves: They are an expense, not a source of new wealth.
      • Great info JK Wall
        One of the many reasons that healthcare work forces grew rapidly over the past two decades is employer sponsored insurance policies covered almost anything that a patient demanded. With little to no cost sharing involved, people got used to demanding more care than they actually needed. Providers bought every piece of equipment in the market to grab a piece of the inflated incomes from providing services that many patients did not need. Buying up physician practices has had to have a huge impact on the increase in the average wage at these hospital systems. And when physician groups are purchased the fees for their services increased exponentially. Locally (in north Indiana) the fee to see a family practitioner at a hospital now starts at $185 and increases from there. Those same practitioners charged $75 for an office visit when they had their own practice. The hospital systems should be ashamed of themselves for inflating these fees. They cut out many uninsured people who could pay the old fee, but now either go without care or get the care at the hospital and can't pay the fee so it becomes a charity write-off. The American system of healthcare delivery is long past due for a major change both from a provider and a patient perspective.
        • Facts and figures
          Although I don't think you intend to mislead, you cannot compare (1) a BMW 740 with a Ford Escort and (2) cancer treatments. For one thing, I can access lots of accurate information on BMWs and Fords. I cannot get nearly the same reliable information on various cancer treatment options. The free market works much better with cars than it does with healthcare. Information that a consumer needs to make an informed decision is much easier to attain. It's easy to get reliable information on a car; it's much harder to get reliable information on healthcare. You mention that we want "the latest and the greatest." I think you are assuming that "the latest and the greatest" is really an improvement over what has come before. But I think this is a questionable assumption, at least in healthcare. For example, there are several treatments for prostate cancer. The "latest" may not be "the greatest." This would be proton therapy. It is the latest and it is the most expensive, costing around twice the cost of other treatments. But it may not be the greatest. It may work no better than treatments costing half as much. Trying to get reliable information on healthcare is very frustrating. I feel much more comfortable taking personal responsibility for picking out a car.
        • To Great info
          Excellent points. Thanks a lot for contributing.
          • What is the correlation?
            I'm a bit confused. What is the correlation between health care premiums and health care jobs? If premiums drop by 25% (assuming coverage stays the same) why would hospitals and independent practitioners decrease their workforce? I can see job loss from the insurance companies but where do the other job losses come from and why?
            • To Mark
              That's a good question. The simulation was really a simulation of a 25 percent reduction in health care costs (at the provider level) that were passed on 1-for-1 to employers in lower health care premiums. It talked in terms of premiums, because that's the primary way employers and their workers experience health care costs (particularly in 2003). Does that make sense?
            • Whose wealth
              To some people in our community new access to health services could mean wealth, even the kind that counts on a bottom line somewhere. So effective demand for health services is rising, targeted on those who have previously been excluded from purchasing. Some will leave jobs they were locked into. Maybe some new entrepreneurs appearing. Suppose there was new demand in the logistics industry. Who's going to pay for all those additional UPS trucks? Depends on your perspective where wealth is created. After all economic base theory is a bit of an abstraction.
            • Pricing
              The health care systems are going to have to change. The change may be forces on the medical community is how they are paid on treatment. I think all hospital should have to reveal their pricing for treatments. Try getting the price for a procedure. The hospitals will not release it. The cost of care has a part in why our health insurance premiums have skyrocketed.
              • Pricing?
                Revealing prices are only part of the issue. First they will have to determine prices which is harder than it looks because expensive technology costs are mostly amortization. Not clear how to allocate the cost across units of service. Mostly prices are arbitrary, designed to maximize revenue, subject to various discounts from public and private payers.
              • 7 out of 10 bankruptcies per year caused by health care costs
                One statistic that is irrefutable, 700,000 out of 1 million bankruptcies per year are due to medical, hospital, health related bills. 70 percent of bankruptcies due to thise non for profit and profit hospitals,Dr's, etc. I don't begrudge Doctors for earning good money, but decrease or eliminated needless lawsuits and lawyers and only in negligent cases allow them, not frivolous lawsuits. A typical GP should earn approx. $100,000 per year and a specialist no more than $200,000 per year. Nurses should be payed more and allowed to have more recognition, not just Physicians, many PA's, Masters/PhD's in Nursing, Nurse Practitioners for general medicine I would stack up against GP's. Healthcare is a noble profession and should never be referred to as an industry. This does not mean that the upper middle class and upper class should be an entitlement of the Healthcare professionals. Merely 100 years ago, Doctor's did not do it for the money, but they earned a very good living and live in very nice houses. It was personable and home visits were common. Local physicians worked out of their homes and local clinics. Perhaps we need to return to that model for GP's and not require residents to need to drive to get to a Physician.

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