Health Care Reform and Job Creation in Pennsylvania, 2010-2019

Health Care Reform and Job Creation in Pennsylvania, 2010-2019

 Marc Stier, Ph.D.[1]

President Barack Obama has said that “health care reform is our jobs program.”[2]  But while economists largely agree with the President that health care reform will, in a number of different ways, lead to job growth, there have been only a few attempts to quantify the job creating benefits of health care reform. This paper draws on that research to quantify the number of jobs likely to be created in Pennsylvania in the ten years between 2010 and 2019.

Our conclusion is that over this period, between 150,000 and 225,000 new jobs will be added to the Pennsylvania economy as a result of health care reform.

Health care accounts for one-seventh of the national economy and health care reform will make dramatic changes in our health care system. It would be incredible if these changes did not have an impact on jobs in a number of different ways. Two stand out and will be examined in this report.

First, to the extent that health care reform reduces the growth in health care costs, it is likely to reduce the costs of health insurance for many businesses, leading to the creation of new jobs.

Second, new health care spending will create jobs in the health care sector of the economy.

This second source of job creation might seem to contradict the first. But there is no real contradiction.

The first factor points to increased efficiency in the health care system. If we can reduce the cost of providing the same level of health care to a number of people, the health care system will become more efficient and premiums per insured person will decline or at least grow more slowly than they would have in the absence of reform. This will enable businesses to expand and create more jobs. Increased efficiency in the provision of health care will, taken alone, reduce the number of jobs in the health care sector. But that decline is more than offset by increased jobs in other sectors of the economy.

The decline in health care jobs produced by increased efficiency in the health care sector is also compensated for by the second factor, the effect of reform on expanding the amount of health care spending for people who are currently under-served because they are uninsured or under-insured. Guaranteeing quality health care for all will directly generate new health care spending and new jobs in the health care sector, and it will indirectly create jobs in industries that supply goods and services to health care providers. New jobs will also emerge because of the multiplier effect of new job holders spending wages and salaries on other goods and services.

Taken together, reduced health care costs and health insurance premiums for businesses and increased health care spending for those who are currently under-served will create between 154,939 and 223,939 jobs in Pennsylvania between 2010 and 2019.

For reasons detailed later in the report, the actual figure may well be closer to the lower estimate than the higher one. But this is still a substantial number. An increase of 150,000 jobs would, in 2010, reduce the unemployment rate in the Commonwealth by 2.5 percent

	Impact of Health Care Reform on Pennsylvania Jobs 2010-2019
	Low Estimate	High Estimate
Impact of reduced health care costs and health insurance premiums due to increased efficiency in the provision of health care	115,000	184,400
Impact of increased health care spending due to insuring the uninsured.	39,939	39,939
Total new jobs, 2010-2019	154, 939	223,939

 

 

I. The Consequence of Increased Efficiency in Health Care Spending for Job Creation in Pennsylvania.

In a recent report, David Cutler and Neeraj Sood, summarize research that shows, first, that rising health care costs harm job creation and second, that health care reform will slow the rise in both health care costs and health insurance premiums.[3] They conclude that health care reform will lead to substantial new job creation in the United States that would average between 250,000 and 400,000 jobs per year over the 10-year period from 2010 to 2019. On a per capita basis, that means between 11,500 and 18,400 jobs will be created in Pennsylvania per year or between 115,000 and 184,000 jobs over a 10-year period.

It is widely believed that job creation is adversely affected when the health care costs—and thus health insurance premiums—increase faster than the growth in gross domestic product. Because employer-paid health insurance premiums are, like wages and salaries, a cost of doing business, when insurance premiums rise, employers reduce their workforce or slow workforce growth. Some of the effects of higher health insurance costs can show up in reduced wage growth, if employees are willing and able to accept lower wages in return for higher employer contributions to health insurance. But some of the effect of higher health costs and higher insurance premiums also show up in reduced employment when, for various reasons, employees are unwilling or unable (because of minimum wage laws) to accept reduced wages.

By studying the impact of health insurance costs on employment in 38 industries over a 19-year period, Neeraj Sood and his colleagues showed that every 10 percent reduction in the difference between the growth in health care costs and the growth in the gross domestic product would lead to the creation of about 120,000 more jobs.[4]

So reducing health care cost growth will lead to more job creation. But why do we expect that health care reform will reduce the increase in health care costs? Another study by David Cutler and, Karen Davis and Kristof Stremikis showed that the provisions of the health care legislation recently enacted by the Congress will reduce health care costs in a number of ways.[5]

• Creating health care exchanges will reduce the administrative costs of insurance, for small and medium sized firms, where these costs are now the highest. The exchanges should reduce employer-paid premiums by about 2 percent, according to Cutler and his co-authors.
• Reforms in payment systems that encourage higher quality and lower cost care will lead to further savings in health care costs. Among these reforms are bundling payments for health care providers and the creation of medical homes to encourage better coordination of care; higher utilization of expensive technologies including high-tech operating rooms and scanners; replacing pay-per-visit systems with pay-for-performance systems; and providing better support in the transition from one health care setting, such as a hospital, to another, such as outpatient care or a nursing home. The health care reform legislation passed by Congress includes a number of provisions that will encourage first Medicare and then private insurance to adopt these reforms in payment systems.
• The excise tax on higher cost employer paid health care plans will, according to the Congressional Budget Office, reduce premiums for small and large employers by 9 to 12 percent.

Taking the consequence of these provisions together, Cutler and Sood estimate that, with health care reform legislation, health care costs will rise between 2010 and 2019 from 8.4 to 12.3 percent less than they would rise without it.

This range of estimates of the reduction in health care costs as a result of health care reform, combined with the estimates of the impact of health care costs on employment, lead Cutler and Sood to predict that health care reform will create between 250,000 and 400,000 jobs annually nationwide between 2010 and 2019. On a per capita basis, that would mean that between 11,500 and 18,400 jobs will be created in Pennsylvania per year or between 115,000 and 184,000 jobs over a 10-year period.

The study by Cutler, Davis, and Stremikis was based on the Senate bill. Because the final legislation delayed the start date for the excise tax on high cost health insurance plans for a few years, and raised the thresholds at which the tax kicks in, it is likely that the increase in jobs will be at the lower rather than the higher end of these estimates at least in the first part of the decade. However in later years, as the excise tax takes effect, additional jobs are likely to be created.

II. The Consequences of Increased Health Care Spending for Job Creation in Pennsylvania

To estimate the consequences of increased health care spending, we draw upon the analysis of the impact of various kinds of government spending on jobs creation in Robert Pollin and Heidi Garrett-Peltier, The U.S. Employment Effects of Military and Domestic Spending Priorities.[6] Using a sophisticated input-output model of the national economy, Pollin and Peltier estimate that $1 billion of health care spending would generate 12,883 additional jobs in the United States. However, since the additional spending generated by health care reform is fully paid for either by tax increases or by reductions in other health care spending, especially wasteful spending in the Medicare program, we need to reduce this figure by the number of jobs that are lost due to $1 billion in tax increases, which they estimate to be 10,799. So the net increase in jobs of an additional $1 billion in health care spending comes to 2,113.

According to an analysis of both the Patient Protection and Affordable Care Act (H.R. 3590) and the Reconciliation Act of 2010 (H.R. 4872) performed by Professor Jonathan Gruber  of the Massachusetts Institute of Technology and reported in a recent paper from Health Care for America Now,[7] $37.8 billion will be spent in Pennsylvania on health care between 2010 and 2019 as a result of this legislation. Because roughly half of this spending will be paid for by reductions in Medicare spending, which are made possible by efficiencies in the provision of care rather than benefit cutbacks, we cut the total spending in half, giving us $18.9 billion in new health care spending.

Thus we estimate that the new health care spending in Pennsylvania will create 39,939 new jobs over the 10-year period from 2010 to 2019. Moreover, the new jobs will pay better than jobs lost due to increased taxes. The average wage of jobs provided by $1 billion of health care spending is $56,668 while the average wage of jobs lost due to an increase in taxes by $1 billion is 46,819.

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