ECONOMIC ANALYSIS: Does growth in health care drive our state’s economy?

Indiana households, businesses and governments spent more than $33 billion on health care products and services in 2004. We don’t have current data yet, but you can be sure the amount is higher today. That’s because growth in health care expenditures in the state has averaged a whopping 8.6 percent per year since 1980. In 2004, spending on hospital care, physician services, prescription drugs, nursing homes, and every other kind of health care product or service gobbled up 14.4 percent of the state’s entire economic output.

In almost every corner of the state, the health care industry represents one of the most dynamic, powerful segments of the economy. In many counties, it’s the largest private-sector employer. Almost everywhere, its payrolls are the fastest-growing, and its expansions and renovations keep plenty of construction workers busy as well. And unlike many other industries, employment levels in health care seem to weather the dips and bumps in the economy remarkably well.

So why aren’t economic developers working around the clock trying to promote more health care investment in their communities? After all, many of the jobs are high-paying, levels of capital investment are fairly high, and prospects for growth are bright. By some measures, these jobs should be among the most-coveted targets for any developer to go after. The reasons they don’t are complex, but so is health care itself.

For one thing, they really don’t have to. Health care growth is taking care of itself, at least from a local perspective. While those in the more sparsely populated areas of the state might disagree, the business opportunities in health care have been sufficient to attract plenty of investment without any sweeteners from the public purse.

And, of course, most of the largest health care providers are not ordinary businesses. Of the 113 community hospitals in Indiana in 2005, all but 19 were either governmentowned or owned by not-for-profits. This usually places them outside the scope of the property tax, and from this narrow perspective, off the radar screen for those seeking to expand the tax base.

That logic has its flaws, when you consider that the thousands of employees, not to mention the scores of satellite and spinoff businesses associated with hospitals, contribute plenty to local tax coffers. But there’s a more fundamental question about health care that needs to be answered first.

Can health care investments be said to drive the economy ahead in the same way as, say, a Honda plant in Greensburg or a Crane Naval Weapons Support Center in southwest Indiana? Or are they more like shopping malls and public schools, riding in the back seat, growing and contracting as other forces stimulate and depress income flows in the community?

After all, in most Indiana communities, the customer of health care can be found in the local phone book. That means the dollars we spend going to doctors and buying drugs are monies we cannot use for other things-which suggests that when health care expands, something else locally must shrink.

But when you bring two topics like health care and economics together, you know it’s not going to end up being that simple. First, much of health care spending is paid for by someone else. And when that third party is, say, the federal government, you could argue that higher spending levels do not come at the expense of local purchasing power. Also, not all health care customers are local, and areas that can retain their own local patients and attract others can add to the economic pie.

And then there is the reason we seek out health care in the first place-to get healthy. Does higher quality, more accessible health care make a work force more productive and a community more desirable? That should be easy to answer.

Barkey is a research economist at Ball State University. His column appears weekly. He can be reached by e-mail at

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