Hospital consolidation, rising health care costs contribute to U.S. job losses

The prevalence of employer-sponsored health insurance in the United States creates a link between what happens in health care markets and wages and employment at firms outside the health care sector.

“A 1% increase in health care prices caused by a hospital merger lowers both payroll and the number of employees at firms outside the health sector by approximately 0.4%,” according to a new study by the Washington Center for Equitable Growth. At the county level, a 1% increase in prices:

• Reduces per capita labor income by 0.27%;
• Increases flows into unemployment by approximately 0.1 percentage points;
• Lowers federal income tax receipts by 0.4%; and
• Increases unemployment Insurance payments by 2.5%.

“In short, we find that hospital mergers that lead to price increases cause middle-income workers outside the health care sector to lose their jobs,” researchers said. “Our estimates also allow us to scale the effect of individual hospital mergers on local economies. We show, for example, that a hospital merger that raised prices by 5% would result in $32 million in lost wages, 203 job losses and a $6.8 million reduction in federal tax revenue.”

The study shows that increases in health care prices are fully passed through as higher insurance premiums and result in dollar-for-dollar decreases in payrolls. Businesses respond to increases in health spending and insurance premiums by lowering the number of workers they employ. Because job losses are concentrated among workers earning less than $100,000 annually, rising health care prices in the United States are exacerbating economic inequality.

“Our results — that rising health care prices can lead to job losses — hold for any increase in prices in the health sector that is not driven by an increase in the quality of care that workers value,” the report said. “So, for instance, our results would generalize to increases in prices caused by surprise billing, upcoding or vertical integration.”

By contrast, the results may not fully generalize to the high prices of newly introduced innovative drugs. As these drugs are introduced, workers likely value the coverage for them, even as it increases spending, and they are willing to forgo some wages to receive these additional benefits.

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Going forward, without substantial changes in public policy that steer the United States away from employer-sponsored health insurance coverage, the most fruitful avenue for addressing the labor market consequences of rising health spending is to push for policies that increase productivity in the U.S. health care sector. This could include taking steps to strengthen antitrust enforcement, which could forestall anticompetitive price increases in the sector.

“Beyond strengthening antitrust enforcement, actions that reduce fraud in the health sector, address patent hopping and other price-increasing strategies in the pharmaceutical industry and reduce surprise medical bills would all limit the types of health care price increases that workers outside the health care industry bear the burden of funding via their wages and employment,” researchers concluded.