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Health spending is slowing. Jobs are rising. What gives?

July 7, 2013

    Dan Diamond, Managing Editor

    One of health care's biggest mysteries: The cost curve is slowing.

    One of health care's biggest certainties: Jobs numbers keep growing.

    Read those two sentences again.

    "It's certainly a puzzle," acknowledged Sam Richardson, a health economist at the University of Texas at Austin.

    And "while there are multiple possible explanations" to explain that disconnect, he added, "the plausible explanations that we can investigate at this point don't hold up."

    The cost—and jobs—conundrum
    I recently spoke with Richardson and several other economists to talk through the latest costs-and-jobs numbers, asking if they could explain a riddle:

      If the health care cost curve is finally bending, shouldn't the sector's employment trends begin to reflect that?

      Or is health care's persistent jobs growth a sign that the latest spending trends aren't permanent—that spending is bound to surge again, too?

    "A lot of people have noted that health care spending has slowed," Amitabh Chandra, an economist and the director of health policy research at the Harvard Kennedy School, told me last week.

    "Many of us would like to think that this is a more permanent slowdown," he added.

    "[But] we see absolutely no slowdown in employment growth in health care. And if that is not slowing, then it's very difficult to believe that there will be a sustained slowdown in health care spending."

    "Absolutely no slowdown" might undersell health care's power as a jobs-creating engine.

    Friday was the 119th straight month where the sector reported jobs growth, an unparalleled track record that spans two major health reforms and the Great Recession; since August 2003, health care has added 2.75 million jobs, nearly half of all new jobs created in the nation.

    Another way to think about that: Each time the Bureau of Labor Statistics releases a monthly employment tracker, health care firms report they've added about 23,000 new jobs. Every month. For nearly ten years.

    When it comes to that kind of consistent job-creation...well, no other industry comes close.

    WSJ: Mid-level jobs are disappearing
    What jobs data tells us: Trends in hiring

    The trend shows no sign of abating, either. Health care gained more than 320,000 jobs in 2012—the sector's strongest year in five years.

    Now contrast that with the clear slowdown in U.S. health costs. The growth rate in national heath expenditures, according to Altarum Institute data, fell from about 8% in 2003 to a little more than 4% in 2013.

    But while the slowdown is clear, the reasons for it aren't. Some have suggested that the health cost curve is getting bent by the Affordable Care Act—if not directly because of its provisions (many of which have yet to take effect), then at least by the climate created by the law. Others say that the economic freeze brought on by the recession was a major factor, noting the effects on hospital hiring.

    Both events may have played a part—but as shown by the graphic above, the spending slowdown apparently began in 2003, years before the ACA and the recession.

    So what gives? Economists still have more questions than answers.

    "One hypothesis is that only lower-paying jobs in health are growing," the Altarum Institute's Ani Turner told me via email. But "we don’t think that’s true." Altarum researchers have reviewed BLS data and found "stable growth" for the most highly paid health care workers—i.e., doctors and nurses—if somewhat lower growth for health care support roles.

    And the University of Texas's Richardson took a look at two other potential culprits: whether the wages paid to health care workers had fallen in recent years, or if their hours worked had declined. But neither scenario had come to pass; in fact, Richardson found that hourly wages had only climbed, while weekly hours worked have remained essentially flat.

    At least a few theories are still in play.

    • Falling spending on prescription drugs and capital investment: A recent study led by Harvard's David Cutler linked at least part of the cost slowdown to the expiration of prescription drug patents and less spending on expensive devices; given the nature of the pharma and device industries, declining spending in both areas would have less effect on U.S. health jobs.
    • Jobs mix may play a role: Richardson notes that the slowdown in hospital jobs growth, even as other health care jobs surged, could offer a partial explanation too, given the high cost of providing care in the inpatient setting.

    More answers may be coming: Chandra is currently investigating the costs-and-jobs disconnect, which has been mostly overlooked amid a sea of studies on comparative effectiveness, health coverage trends, and other topics more closely tied to the health law. And he thinks that finding a link, or lack thereof, between health costs and health jobs could offer clues on where national spending is headed.

    "When people ask me what I'm working on ... they [often] expect to receive an answer about whether this cardiovascular technology or that chemotherapy technology is valuable or wasteful," Chandra told me.

    "They're not expecting to hear 'I'm using employment in health care as a crystal ball.'"

    Just posted to Advisory.com



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