Friday, July 26, 2013

Health Care Spending and Health Care Jobs - The Dichotomy

With the Patient Protection and Affordable Care Act (PPACA) aka Obamacare making the news cycle on a regular basis, the following information is rather pertinent given that there are many different scenarios that could play out in the American health care system as a result of its implementation.  This will impact all taxpayers down the road as the ultimate burden for health care costs lie on the shoulders of Main Street America.

A recent analysis by the Advisory Board Company, a global research and consulting firm specializing in health care and education, examined the relationship between growth in the rate of spending on health care and the growth in the number of jobs in health care.  The analysis notes two things:

1.) The cost curve for health services is rising at a slower rate with time.

2.) The number of employees in health services keeps growing at the same (or greater) rate with time.

That seems like a conundrum, doesn't it?

On the spending side, a study by Harvard's David Cutler and Nikhil Sanhi suggests that American health care spending growth has slowed over the past four years.  While 37 percent of the slowdown was related to the Great Recession and a decline in private insurance coverage and cuts to Medicare payment rates accounted for an additional 8 percent of the decline in spending, that still leaves 55 percent unaccounted for.  The authors suggest that there are a "host of fundamental changes" in the health care system at work.  These include:

1.) Less rapid development of new imaging technologies resulting in lower capital spending.  

2.) Greater efficiency in the provision of health care.

3.) Patients bearing a greater share of the overall cost of health care.

4.) The expiry of patents on prescription drugs and the replacement of these drugs with less costly generic alternatives.

This study shows that if this slowdown continues out to 2022, public sector health care spending will be as much as $770 billion less than earlier projections.

Assuming that we agree that health care spending growth rates are dropping, let's look at a graph that shows the annual spending growth rate (in yellow) and the growth in the total number of health care workers (in turquoise):

According to Bureau of Labor Statistics, the last month that the health care sector lost jobs was....wait for it....July 2003!  Between that time and now (119 straight months), the health sector added a whopping 2.75 million jobs, nearly half of all new jobs created in the United States, growing right through the Great Recession like it didn't even happen.  That's a job creation rate of roughly 23,000 brand spanking new health care jobs each and every month since mid-2003.  In 2012 alone, this sector added 320,000 jobs alone, the strongest growth rate in five years.

Here is a bar graph showing the new jobs in health care (in turquoise) and the new jobs (or jobs lost) in all other industries (in gray) between 2007 and 2012:

Which sector of the health care field is offering the greatest job growth?  Since January 2009, the ambulatory care sector has grown by 9.3 percent, adding nearly 530,000 jobs compared to the hospital sector which has grown by only 2.6 percent, adding only 120,000 new jobs.

When you look at the dropping rate of health care spending growth in conjunction with the rising rate of health care employment growth, the disconnect is most fascinating.  Given that there is stable growth in employment for the highest paid health care workers (doctors and nurses) and rising average hourly earnings as shown here... has to wonder how long it will be before the rise in health care costs begins to accelerate again.

1 comment:

  1. There are 2 reasons there are more health care workers each year: 1 is the increasing weight of many people in the US and 2 is because of our aging population. Being overweight causes all sorts of health issues. An aging population is sicker than a younger population.