The downside of strong growth in health care jobs: higher costs

Jobs growth soars (CNBC). November Job Growth Booms (USA Today). US economy smashes forecasts (Business Insider).

That enthusiasm was the general reaction to the November jobs report tallying an increase of 266,000 jobs.

But inside that report is a dark cloud that went largely unnoticed: the addition of 45,000 jobs in health care. Over the last 12 months, health care has added 414,000 jobs. And that doesn’t include jobs in the health insurance industry, which are classified under financial activities, and jobs in the pharmaceutical sector, which are classified under manufacturing. Health care added more jobs than either information technology or retail sales last month and last year.

Why isn’t that wonderful news? After all, health care jobs are said to be “good” jobs — they tend to be high-paying with benefits. Health care is also counter-cyclical: People get sick regardless of consumer confidence or economic conditions. Unlike manufacturing or retail sales, during a recession the demand for health care does not decrease very much, and health care jobs tend not to disappear.

During the Great Recession from 2007 to 2009, health care actually added jobs each month, for an overall total of 852,000 new jobs, while the rest of the economy shed 8.7 million jobs. As one writer put it, “People who work in the medical field often enjoy fantastic job security.”

Hospitals and physician offices are often among the biggest employers in cities and states. In Missouri, for instance, the biggest employer is Ascension, a religiously affiliated health care system with more than 100,000 jobs statewide. In Tampa, Fla., the biggest employer is BayCare Health System with 28,400 employees. In Springfield, Mass., it’s Baystate Medical Center. In Denver, four of the top 10 employers are health care systems. Even in the Bay Area, health care systems are among the top employers, with Kaiser Permanente and Sutter Health employing more people than Google.

This is a problem because more health care jobs mean higher health care costs.

Since the passage of the Affordable Care Act in 2010, increases in health care costs have moderated. But over the past few years, the Department of Health and Human Services has reported higher year-by-year increases in health care costs. In 2018, national health expenditures rose 4.6%, accounting for $150 billion more than the previous year.

When Americans are polled, health care affordability is their number one issue. About one-third of Americans report foregoing medications because of cost — more than in any other developed country. A survey by University of Chicago researchers found that in 2017, 44% of those surveyed did not go to the doctor when they were sick or injured for fear of the cost.

Americans who worry about affordability have to worry about those “great” new health care jobs. About 55% of all health care spending is related to salaries and wages. Adding more jobs adds more salaries, and adding more salaries increases health care costs.

Translating job growth into dollars means that adding 414,000 new jobs in one year translates into about $35 billion more in health care spending — and that doesn’t even account for the annual pay increases for the more than 17 million Americans already working in health care.

These costs are passed through to all Americans in the form of higher premiums and higher taxes.

Stunningly, only about 40% of these jobs represent more doctors and nurses caring for patients. For instance, between 2017 and 2018 the Bureau of Labor Statistics reports an increase of fewer than 13,000 physicians and about 150,000 nurses. Most of the new jobs are administrative and roles that don’t interact with patients: people working in back offices processing claims, administering physician offices, or working in laboratories.

This is surprising. Across most of the U.S. economy, companies have gotten very good at automating, removing administrative jobs, and increasing back-office productivity. This is driven by a combination of pricing pressure, competition, and adoption of information technology. Health care lags far behind all other commercial sectors when it comes to productivity.

Because health care is so labor-intensive, wages to workers are the real reason it costs so much. Wages explain why hospitals are so expensive: They are filled with workers. Hospitals are able to keep hiring since most have the market power to pass on new salaries as higher prices to insurers.

It is impossible to imagine how we can make health care more affordable if we keep adding hundreds of thousands of health care jobs each year. As Jonathan Skinner and Carrie Colla, two Dartmouth health economists, write in a forthcoming book about the Affordable Care Act, “The Trillion Dollar Revolution,” that one of us (E.J.E.) co-edited, “It is unlikely that health care cost growth will moderate without a corresponding moderation in the growth of health care employment.”

What we really need are stronger incentives for dramatic improvement in health care labor productivity. This is a sector where robots replacing administrative jobs should be welcomed as a way to make health care more affordable, a goal that Americans desperately need.

Ezekiel J. Emanuel, M.D., is vice provost and chair of the Department of Medical Ethics and Health Policy at the University of Pennsylvania, a venture partner at Oak HC/FT, and author of the forthcoming book “Which Country Has the World’s Best Health Care?” (Public Affairs, June 2020). Bob Kocher, M.D., is a partner at Venrock, a venture-capital firm; a nonresident senior fellow at the University of Southern California’s Schaeffer Center for Health Policy and Economics; and an adjunct professor of medicine at Stanford University School of Medicine. Both authors worked in the Obama White House on the Affordable Care Act.