By Peter Orszag
NEW YORK: Evidence is spreading that health-care costs are growing much more slowly than before. Now, it’s not just a flattening in Medicare spending; the deceleration has spread to employment, too.
Last fall, in a generally skeptical analysis of the apparent slowdown in health-care costs, Harvard University economist Amitabh Chandra and co-authors noted that, because 57 percent of overall health-care expenditures are labor costs, “it seems unlikely that we would expect to see a permanent bending of the cost curve without a commensurate shift in employment rates.” And at that point, they didn’t see any such shift.
Now, a few months later, the accumulating data show that we are indeed experiencing a noticeable decline in health-care employment growth. From 1990 to 2005, according to the Bureau of Labor Statistics, employment in health care grew by an average of 2.8 percent per year. But over the past year, it has grown by only 1.4 percent. And in the past two months, it has barely changed at all — and that is something that hasn’t happened since data collection began.
“We have noted since first publishing on the health care spending slowdown that health labor would eventually need to follow suit,” said Charles Roehrig, director of the Altarum Institute’s Center for Sustainable Health Spending. “We have apparently finally reached that point.”
Within health care, employment is still expanding rapidly in some areas but has slowed sharply in others. The most notable trend is that hospital jobs, which account for a third of employment in the sector, have basically stopped increasing. On the other hand, in some outpatient care services (freestanding emergency medical centers and kidney dialysis centers, for example) the number of jobs has risen about 6 percent over the past year. These patterns reflect the broader shift toward outpatient care.
What does this all mean both for the broader economy and for health care? Given the weak state of the labor market, will sluggish job growth in the health-care sector be a problem? Consider that, if the job growth rate in health care after 2010 had continued at its historical average of 2.8 percent per year, the sector would employ some 650,000 more people today than it actually does.
While that seems like a lot of jobs, however, it would represent only about one-half of 1 percent of the work force, even assuming the additional jobs in health care did not displace jobs in other sectors. The way to strengthen the overall labor market this year is not to perpetuate inefficiencies in health care. (By the way, some good news for workers in the sector: The share of labor compensation in total health-care income has remained roughly constant over time. That stands in stark contrast to the economy as a whole.)
Potentially more troubling for the larger economy is that job projections assume there will be rapid growth in health care in the future. The Bureau of Labor Statistics projects that from 2012 to 2022, jobs in health care and social assistance will grow by an average of 2.6 percent per year, faster than any other sector. As a result, health care is projected to account for a full third of total growth in employment in the U.S. through 2022. If the recent slowdown continues, that simply won’t happen.
The way to square this circle is to shift the types of jobs within health care. The sector is replete with labor-market inefficiencies. One example involves scope-of-practice restrictions that prohibit professionals from undertaking particular tasks. Nurse practitioners, physician assistants, pharmacists and occupational therapists, among others, are capable of doing more than they are allowed to do — and letting them would increase value to consumers. To the extent that work shifts toward these types of health-care providers, employment in the sector can grow without a commensurate rise in costs. Indeed, encouraging this shift is a key way to promote better value in health care.
Anyone who remains skeptical that health-care costs are decelerating should take pause from recent job trends. At the same time, employment growth in health care need not remain so sluggish to keep the cost increases slowing. Instead, policymakers at both the federal and state levels should move aggressively to allow some types of health-care workers to perform all the tasks they are qualified to perform. Clearing away that underbrush would help to at once bend the health-cost curve and encourage employment growth.
Orszag is vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup and a former director of the Office of Management and Budget in the Obama administration. He can be reached at email@example.com.