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Health: Risk Factor

Deficit Debate Complicates the Industry’s Employment Outlook

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The budget crisis may negate some of the gains made by the 2010 health care overhaul, say industry economists.

Health care industry executives hoped that the legislative drama was behind them when President Obama signed the health care overhaul law in March 2010. After nearly a year of debate, medical providers and insurance officials finally had the statutory version of the legislation to provide hints about its effect on health care jobs. In the end, economists expected it to provide a modest boost in net employment across the sector.

Now, 18 months later, industry officials are again facing uncertainty as lawmakers discuss ways to reduce the federal deficit. As part of his deficit reduction package released last month, Obama proposed $320 billion in Medicare and Medicaid cuts to providers, drug companies and other health-related companies, some of which backed the health care law under the theory that the administration would not come after them for further payment cuts in the near future. Health economists say that significant reductions could negate at least some of the increase in health care jobs that the 2010 overhaul might produce.

Lobbyists representing hospitals and other providers such as home health agencies or nursing homes are invoking concerns about job losses in their arguments against additional spending cuts. The deficit debate and all the questions that come with it bring an unusual level of ambiguity for an industry that is still struggling to plan for major changes in 2014, when the most far-reaching provisions of last year’s law are scheduled to take effect.

“This is the wrong prescription to create a healthier America and sustain job growth in a sector of the economy that is actually adding jobs,” said Rich Umbdenstock, CEO of the American Hospital Association, on Sept. 19.

Regenerative Powers

Throughout the economic downturn, health care has been one of two sectors that continued to add jobs (the other was education). Total health care job growth for the past year was about 305,900, an increase of 2.2 percent, according to the Bureau of Labor Statistics. Health care added about 25,500 jobs each month during the 12-month period that ended in August, according to the seasonally adjusted figures.

Federal policy is not the driving force behind job creation in the health care sector. A more important factor is the aging and declining health of the population, which leads to higher demand. But government decisions — including Medicare payment rates, Medicaid payments to the states, the health care law and additional health care funding that was part of the 2009 stimulus law — can have an impact.

For instance, AHA officials predict that if Obama’s deficit reduction package becomes law, about 200,000 jobs in hospitals and in businesses that work with hospitals will be lost. That comes against the backdrop of a modest uptick in hospital jobs over the past year at a time when most industries were shedding jobs. Hospitals created more than 74,000 jobs in the past year, including almost 8,000 new jobs in August, when overall job creation in the economy was nil. The increase over the year was about 1.6 percent, to a total of 4.8 million workers. Hospital employment has a major effect on the rest of the health industry workforce, which totals more than 14 million people.

So far, the 2010 law has not had much of an effect on the health care industry because most of the statute’s coverage expansions will not take effect until 2014. That is when millions more people will be eligible for Medicaid and others will get insurance through new federally regulated markets known as exchanges. By 2016, the law would allow about 16 million more people than under previous law to receive Medicaid benefits. In that same year, another 22 million people will gain coverage through the new private insurance exchanges.

Economists predict that once the changes from the health care overhaul are in place, hospitals will be one of the industries that will see a net gain in jobs, albeit a relatively modest one.

Estimates for the effect of the health care law on employment all come marked with asterisks because such predictions are based on a wide range of underlying assumptions. If the assumptions change, different outcomes could result. But projections tend to find that the new law will increase jobs, especially in physicians’ offices and the pharmaceutical industry, with a modest bump up in hospital jobs.

The Lewin Group estimated last year that net income for hospitals would decline by about $11.3 billion from 2010 to 2019, but overall revenue would increase by about $75.2 billion. Randy Haught, senior director at the Lewin Group, estimated this month that hospitals would gain about 50,000 jobs through 2019 because of the health care law.

The estimate balances two countervailing effects of the law. One would reduce hospital revenue because hospitals agreed to Medicare payments that were $155 billion lower over the decade than previously expected. But the law also would bring more patients into hospitals because it requires most Americans to buy insurance. People who are insured tend to get more medical care than those who are uninsured. That influx of patients and the money they spend for hospital care is expected to more than compensate for the lower Medicare payments.

Physicians would potentially see a bigger increase in income, by $129.8 billion from 2010 to 2019. That translates into about 138,000 jobs, said Haught.

The 2014 Effect

The health care sector is expected to continue to be a growing part of the nation’s economic output and its workforce over the next decade. The share of the gross domestic product is expected to rise from 17.6 percent in 2009 to about 20 percent in 2020, according to the Centers for Medicare and Medicaid Services (CMS). With that increase will come a growing demand for workers, ranging in training from people with no high school diploma to those with advanced degrees.

The CMS actuaries found that the new coverage called for by the overhaul will increase spending in several categories in 2014. Although that spike in spending will in many cases level out, the one-year increase means that the baseline of funding after 2014 will be higher than it otherwise would have been, and for some types of services, the annual growth rate is expected to be higher after 2014.

For instance, prescription drug spending growth in 2014 is estimated to be more than 5 percentage points higher than it would have been without the health care law as people who gain insurance start taking prescriptions that they had not taken before. CMS actuaries predict that from 2015 to 2020, the annual spending growth for drugs will be about 7.2 percent a year, higher than the 5.3 percent growth level in 2009.

Spending for physician and clinical services in 2014 is projected to be about 3.1 percent higher than it would be without the health care law. After that, spending is expected to grow by 5.6 percent per year from 2015 to 2020, up from 4 percent in 2009. One reason the actuaries projected higher spending growth for physicians is that more people will be covered, and the care may be provided for patients earlier and more efficiently than it would be otherwise.

However, even economists who have produced estimates say that it’s hard to know with certainty what future spending levels will be and how much that would spur job creation. And it’s even harder to figure out what effect the proposed Medicare cuts, which are far from being decided, might have.

Nicole Smith, a senior economist for the Georgetown University Center on Education and the Workforce, stressed that government policies are only one factor in why health care is one of the fastest-growing sectors in the economy.

“The health care sector was very vibrant to begin with,” she said. “The momentum in health care was already there and the wave was moving in this direction.”

The health care overhaul, she said, “just pushes it a little more.”

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