Employment and US Health Care Reform: Title and subTitle BreakSaving Jobs While Cutting Costs

The United States has arrived at another critical juncture in the history of health care reform and efforts to achieve universal health insurance coverage. Health care was an important theme of the 2008 election and President Obama as well as congressional leaders have stated that they hope to enact reform legislation within the year.^{1 - 2} Even before the current economic downturn began, 16% of the population lacked insurance and history indicates that number will increase with increasing unemployment.³

The combination of a Democratic president and majorities in both houses of Congress, together with a “crisis” mentality, evokes memories of similar circumstances in US history. These include President Roosevelt's New Deal in the 1930s and the passage of Medicare and civil rights legislation under President Johnson in the 1960s. On the other hand, despite both presidential and congressional support, major health care reform initiatives stalled in the 1970s and the Clinton administration's Health Security Act failed in the early 1990s.⁴ Consequently, policy makers and health care analysts are cautious in their optimism for reform this time.⁵

One central goal of health care reform is to reduce US health care costs or more realistically to slow their increase. Over the course of 5 decades, the share of US gross domestic product (GDP) devoted to health care has increased from 5.5% to 16%, and the Congressional Budget Office (CBO) projected last year that the figure could reach 25% by 2025.⁶ More affluent nations spend more on health care, but a recent study concludes that after adjusting for per capita GDP, the United States still spends $643 billion more annually than other industrialized countries.⁷ Despite this disparity, US health care outcomes are no better, and in many cases worse, than in other countries.⁸

Health care spending trends have profound implications for the federal government's long-term fiscal posture, a concern exacerbated by both the current economic slowdown and the government's response. In 2007, well before the scope of the economic problems was evident, the CBO projected that the federal budget deficit in 2030 would be 10.1% of GDP.⁹ This amount is more than half of the projected federal revenues for that year (approximately 19% of GDP), implying that, if the projection were to hold, a 50% increase in all federal taxes (income, payroll, corporate, and other taxes), or equivalent spending cuts, would be needed to balance the budget. More than 40% of the estimated shortfall is attributable to Medicare and Medicaid spending, which is expected to increase from 4.1% to 8.4% of GDP over this period.⁹ By comparison, during the same period, Social Security costs are projected to increase by “only” 1.8% of GDP, interest costs by 3.1% of GDP, and discretionary spending is expected to decrease slightly.⁹

Increases in health care cost also contribute directly to decreasing insurance coverage and together they form a vicious cycle. Rising costs increase the number of uninsured,³ and the transfer of the costs of caring for the uninsured to the insured further increases premiums, causing even more individuals to lose insurance.

Health care reform advocates have identified 4 key drivers of high US health care spending and therefore potential targets for cost savings to pay for universal coverage, reduce budget deficits, or both. Compared with similar countries, such as Canada, Germany, and the United Kingdom, the United States has higher administrative costs, higher wages for health care workers and professionals, and higher use of expensive, high-technology interventions, and it delivers more wasteful (ie, unnecessary or inappropriate) care.¹⁰ Support for the last point is derived from data showing wide geographical variations in Medicare spending without evidence of superior health outcomes in high-cost areas (and some evidence of the opposite).¹⁰ The Obama administration has emphasized elimination of wasteful care.⁷ Others have focused on administrative costs, arguing that private insurers' reliance on medical underwriting, advertising, utilization management, and insurance “product” development all represent costs without benefits.¹¹

None of the possible sources of cost savings is free of controversy. For example, although “waste” seems an obvious candidate for elimination, it is a contested and slippery concept.¹² Perhaps surprisingly, however, one key concern raised by cost-cutting has received relatively little sustained attention—the effects on jobs and income. Fuchs¹³ has noted that “every dollar of health care spending is a dollar of income to someone involved in providing health insurance or health care.” This fact, always important, has been made especially pertinent by the economic crisis. Nevertheless, in discussions of health care reform, it has been mentioned mostly in passing. Although quantitative studies are needed, the remainder of this Commentary will describe some conceptual issues that policy makers should consider.

The first point is to recognize the significance of the concern. Health care is the largest US industry, employing 13.5 million workers or 10% of the total workforce.¹⁴ By one estimate, 27% of those jobs are clerical and administrative positions,¹¹ which translate into more than 3.6 million jobs. By comparison, as of February 2009, approximately 4.4 million US jobs have been lost in the current recession so far.¹⁵ Moreover, in the most recent jobs report, health care was one of a very few employment categories to have shown job growth, adding about 3 times as many jobs (27 000) as government, the next highest category.

Second, with the possible exception of the Great Depression, the United States is ideologically resistant to “jobs programs” and “industrial policy,” which conjure images of “socialist” governments. For example, the bailouts of the auto industry and especially the financial industry are politically controversial, and not only because they have been hampered by public relations fiascos such as the revelation of high bonuses for financial executives and luxury perks for automobile company bosses. As a result, from a jobs standpoint, job preservation may be worth more than job creation.

Third, much depends on how ambitious the efforts are to reduce spending. There may not be a simple linear relationship between costs and employment, in which each dollar of savings translates into some equivalent of job and income loss. If cost cuts are comparatively modest (and assuming a relatively healthy economy), other components of the economy may be able to absorb workers from the health sector gradually and without too much difficulty. If, however, cost savings play a dominant role in health care and budget reform, the disruption and displacement would be more severe. Significant job loss within a single industry (ie, health care) also may be worse than the loss of the same number of jobs across the economy, as many workers with similar training and backgrounds would be dumped into the job market at the same time. There is an analogy here to the downturn in the defense industry in California in the early 1990s or in the auto industry now. For health care in particular, some types of expertise, especially for specific services, may be more difficult to transfer to different settings than training for other industries.

If employment concerns are taken into account explicitly, the transition to a new system of health care delivery may also have to be even more gradual than might be expected for other reasons. Job loss through attrition is obviously preferable to layoffs. This may be an especially important issue for single-payer proposals. Health care is a much larger sector of the US economy now than it was in Canada when Canada's single-payer system was implemented in the late 1960s and early 1970s.

Fourth, there is an important difference between job loss and income loss. Cutting reimbursement for the highest-income clinicians, or reducing returns to shareholders, may be defensible, although politically difficult. Moving care away from specialist and subspecialist physicians toward primary care clinicians, again not an easy task, may be more acceptable from an employment point of view because it will occur gradually. Wholesale elimination of entire sectors of employment, however, such as insurance underwriters, may cause more serious and intractable problems.

Fifth, a distinction should also be made between products and services. Health services jobs are locally based and, in the current environment, can be viewed as politically innocuous employment programs. On the other hand, high-cost products such as medications serve an international market. The United States appears to bear more than its fair share of these costs already, but pharmaceutical spending is also high in other countries. Thus, a reduction in the prices that US consumers pay for these products may result in a smaller reduction in US jobs, dollar-for-dollar, than similar savings on services.

Sixth, a novel idea in health care might be to consider buyouts. Just as owners of real estate around public programs such as the Boston “big dig” highway project were compensated for their potential loss, a single buyout payment to some employees in the health care sector may be a reasonable strategy. Although such buyouts may seem to be politically unpopular, perhaps US policy makers could learn from the experiences of other countries such as Canada that closed the private insurance market when they enacted publicly administered insurance plans. In Ontario, for example, the reserve fund of the major private insurer was used to start a research foundation.

A related approach would be to shift the health care work force to serve other health-related needs. Clearly, some sectors of the health care system will need to be expanded, such as primary, geriatric, and long-term care. A strategic road mapping of the transition from currently underutilized services such as cardiac surgery to other services could begin sooner rather than later to achieve gradual success. Public and population health initiatives are also far less generously funded than health care, and savings could be channeled in those directions. Under this approach, lesser savings in total health-related costs would be achieved but health outcomes could be improved and important needs such as long-term care not ignored.

There is little doubt that the US health care system is inefficient and, in principle, inefficiency should be minimized. The pathway to achieving greater efficiency, however, is a different matter. It will not be politically possible to proceed down a path of cost reduction without giving due consideration to the overall employment strategy for the United States. This may mean smaller health care cost savings than would otherwise be desirable, and perhaps especially slower reduction of administrative costs.

To take advantage of the benefits of compounding, it is imperative to begin sooner rather than later, and gradual changes may still achieve the significant long-term cost savings needed to reduce budget deficits. But it may be unrealistic to count on savings to finance a large share of universal coverage in the short term. Policy makers previously have recognized the interaction between saving costs and expanding coverage. Now more than ever, the potential for health care cost savings to lead to job loss and reduced incomes must also be recognized as a legitimate policy problem to be addressed and not simply a political one to be “overcome” to achieve reform. Employment effects deserve careful examination in planning for any health policy initiative.