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Study Links Rise in Health Care Costs to Job Losses

Posted by: Cathy Arnst on July 23

In a first-of-its-kind study, the non-profit Rand Corp linked the rapid growth in U.S. health care costs to job losses and lower output. The study, published online by the journal Health Services Research, gives weight to President Barack Obama’s dire warnings about the impact of rising costs if Congress does not enact health care reform.

The Rand researchers examined the economic performance of 38 industries from 1987 through 2005, in an attempt to assess the economic impact of “excess” growth in health care costs on U.S. industries. Excess growth is defined as the increase in health care costs that exceeds the overall growth of the nation’s GDP—a yearly occurrence in the U.S. The team compared changes in employment, economic output and the value added to the GDP product for industries that provide health benefits to most workers to those where few workers have job-based health insurance.

After adjusting for other factors, industries that provide insurance had significantly less employment growth than industries where health benefits were not common. Industries with a larger percentage of workers receiving employer-sponsored health insurance also showed lower growth in their contribution to the GDP.

For example, the study estimated that a 10% increase in excess health care costs would reduce employment by about 0.24 percent in the motor vehicles industry, where 80% of workers are covered by employers. The retail industry, however, where only one third of workers are covered, saw only a 0.13% percent drop in employment. Economy-wide, a 10% increase in excess health care costs growth would result in about 120,800 fewer jobs, $28 billion in lost revenues, and $14 billion in lost GDP value.


This study provides some of the first evidence that the rapid rise in health care costs has negative consequences for several U.S. industries,” said Neeraj Sood, the study’s lead author and a senior economist at RAND. “Industries where more workers receive employer-sponsored health insurance are hit the hardest by rising health care costs.

To rule out the possibility that the economic effects were caused by some other industry-wide factor, the researchers compared U.S. industries with their counterparts in Canada, which has publicly financed universal health care. They found no similar percent change in employment in the corresponding Canadian industries over the 19-year study period.

The rate of growth in U.S. health care costs has outpaced the growth rate in the gross domestic product (GDP) for many years. In 1940, the share of GDP accounted for by health care spending was just 4.5%. By 1990, it had reached 12.2%, and 16% in 2005, when health care spending totaled nearly $2 trillion, or $6,697 per person, far more than any other nation. This year health care spending is on track to equal 18% of GDP.

RAND researchers underscore that their findings do not necessarily mean that rapid growth in health care costs results in large job losses in the overall economy, since losses in industries that cover most of their workers are at least partially offset by gains in those industries that don’t insure. Of course, the workers themselves may not find those jobs equivalent.

The study was partially funded by Bing Center for Health Economics at RAND and the U.S. Department of Health and Human Services.

Reader Comments

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TzIPI

July 27, 2009 04:46 AM

the study founded by the department of health and human etc.
are you kiding,this health care will kill us
look at BRITIAN,CANADA,ISRAEL,
FORGET ABOUT IT.
WE DONT WANT THE GOVERMENT TO TOUCH OR HEALTH CARE,
DONT TOUCH IT

RealityBites

July 29, 2009 09:51 PM

If government run health care is so bad, I wonder why every elected official in Washington, DC would rather have that than the free market health care you and I have?

katie Bianco

August 11, 2009 03:22 PM

Lets think about what's best for the country. I'd be happy if you touched my healthcare. Paying out of pocket for healthcare right now because my employer can't afford to give us healthcare! Now, I'm 25, but in 20-30 years, its going to make a huge huge difference how I'm managing my healthcare.

I think gov't healthcare really is the way to go. My father as a gov't employee has great healthcare benefits. This is the same plan O is proposing we buy into. I'm game.

Making a Difference

August 12, 2009 11:28 AM

Wake up America; get your head out of the sand, then walk a mile in my shoes. When I was laid off from my job of over 21 years of service more than 22 months ago, no one was speaking up for me and many businesses were jerking me around or putting the screws to me. While waiting for COBRA to send me info [which is a government requirement], I contacted my current insurance company [UHC]. Their CSR told me that I could pay upfront to submit my application but because of my height/weight proportions and current health conditions it’s unlikely I would be accepted, have to pay much more, and/or the conditions could be excluded for coverage and this was from the insurance company I have had as far back as I can remember.

As for paying the full cost of my employer’s insurance plan under COBRA, I had no other options as my medications exceeded it. Also, in the State of Florida unfortunately unemployment is capped at $275 a week [less taxes] and the cost for my insurance under COBRA was over $500 a month; that doesn’t leave much left for everything else. With not wanting to lose my home, I tapped into my retirement [which is gone now] and I still owe the IRS about $7000 just for last year alone. Luckily, now that COBRA has ran out, my fiancé was able to add me under his policy, but he is about to be laid off as well.

Americans are better off now that the President & the Government have stepped in to insure businesses and insurance companies do not do what has happened to me. God Bless them and they have my full support.

AJL

August 20, 2009 06:16 PM

So, let me see if I understand what is being said. In segments of the economy where the employer picks up some or all of their employee's health insurance, as health insurance premiums increase, employees tend to get laid off in larger numbers than in industries where employers do not contribute to employee insurance. And why is this a surprise? In a capitalist economy, the goal is to make as much money as quickly as possible. Profit = Revenue - Costs. If revenue remains flat or decreases and the same profit must be maintained, costs have to go down. And the most expensive portion of a company's cost is its employees. Do I like this? No, but in a society where more government concern is directed toward business instead of toward the general population what do you expect? What I find interesting is the argument that the private health industry cannot compete with a government run program but all other sectors of our economy are forced to go up against foreign competition that is to a large extent supported by their government. And a large portion of their government support is in the form of healthcare costs that their business sector does not have to cover.

AJL

August 20, 2009 06:22 PM

What I would like to hear someone discuss is a re-evaluation of our current employee payroll taxes. these numbers are not accurate but merely for argument sake. If my federal payroll tax is 17% and SS & Medicare tax rate are 5%.. If you redistribute those percentages, change the payroll tax to 10% and funnel that 7% into SS & Medicare, the effect on my take home pay would be the same but by law more of those tax dollars would be directed to the specific programs most in need of money.

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