Earlier this week, Larry Levitt commented on the New York Times article on middle class jobs in healthcare with the following tweet:
Great to see more middle-class jobs. Of course, when the jobs are in health care, more employment = higher costs. http://t.co/dBIvZOSc94
— Larry Levitt (@larry_levitt) February 23, 2015
I think there are two ways to read this tweet. The first is the simplistic one that of course an additional job in healthcare, all else being equal, leads to higher total expenditure on healthcare. That is barely interesting. The more important question in health policy is at what rate does total health care expenditure change in relationship to the broader economy. If it grows faster than the broader economy, healthcare takes up more proportional resources. If it grows slower than the general economy, we have more money to spend on other things. The past couple of years, healthcare expenditures have been growing at roughly the rate of the economy which is a massive policy victory.
This relative proportional change lens makes us view employment reports differently. Right now, the US devotes roughly 17% of GDP to health care. The US civilian, non-institutional labor force in NAICS 621,2,3 for the BLS has roughly 10.5% of that labor force devoted to healthcare. That number has been reasonably stable for the past several years, and before that, it was increasing at a slower rate than the total healthcare expenditure growth rate.
Last month, the US economy added 257,000 new jobs. We would expect the US economy to add roughly 27,000 healthcare jobs based on the headline number. Last month, the initial estimate had a healthcare job gain of 38,000 new jobs. So we were devoting a little more of labor force to healthcare than job growth alone would suggest. Given the known error bars on the subset estimates, that is not too worrying of a deviation from the 2014 average of healthcare roughly growing proportionate to total job growth.
We should expect to see healthcare jobs increase as the employment rolls increase, and as the population ages. That leads to the next analytical question… what types of jobs are being added. If a disproportionate number of jobs being generated are high end specialists than it is highly likely healthcare spending will be increasing as they tend to get paid a lot plus order expensive treatments. If a disproportionate number of new jobs are licensed practical nurses who visit high risk patients, physical therapists and care cooridination specialists, they are comparatively cheap to hire and more importantly, they divert significant amounts of future spending. Seeing an increase in outpatient clinic employment and a decline in hospital employment would be a significant change in the employment case mixture that would lead to a conclusion that healthcare costs are being contained. It is quite possible for significantly more people to be employed in healthcare at medium levels of skill while total costs as a proportion of GDP stays stable.
Both the total employment levels and the mix of employment are critical components to look at.
Baud
Thanks, Richard. I’ve added Larry Levitt to my list of people not to take seriously.
It’s a long list.
richard mayhew
@Baud: No, keep him on the list of worthwhile reads as he is — what I laid out in this post was a couple of years of grad school where the beatings continued until case mix adjustments became second nature — it is strange and not the most intuitive stuff…
And on the most banal point that he is making, he is right… I just don’t think it is a particurly worthwhile point
Baud
@richard mayhew:
How is he right? As you pointed out, more net jobs does not necessarily equal higher overall costs.
Richard mayhew
@Baud: a new job means all else being equal, more paid so the nominal sum increases.
Once normalized to GDP or labor force the question gets murky
D58826
It’s just his shorthand way of saying it’s Obama’s fault
RSA
I don’t know how relevant this is, but I’m reminded of a situation in education (mainly K-12). Older people may wonder why education costs have gone up since they were kids. My understanding is that part of the answer is that education is labor intensive, and we don’t know how to scale it well, so a lot of the time improving education means hiring more people; another part is that we want those people to be as smart as possible, which means they expect to get paid more; yet another part is that the educational workforce is still predominantly female, and movement to reduce the gender pay gap will affect costs.
But as I say, I don’t know if any of this applies except the first.
Baud
@Richard mayhew:
Isn’t it net jobs? What happens if higher paying management jobs are being replaced more lower paying practitioner jobs? And “all else being equal” is a qualification that appears nowhere in the tweet. Instead, Levitt says “of course” costs are higher.
He’s staying on the list.
Baud
@Baud:
Richard, we don’t you respond that more jobs = healthier people and see if you get taken seriously by Levitt.
Mike
more healthcare workers, says to me, more healthcare consumers. Millions of uninsureds are now getting the care they need but had put off. Seems to me that growth in the sector is a feature, not a bug.
richard mayhew
@Mike: It depends……. that is the entire point of my post :)
@@Baud: Hard to qualify in 140 characters or less. Larry is one of the good guys who is more health insurance mechanics focused than econ policy analysis focused… my background for health insurance is strange so I’m bringing in a couple of odd skills and tools to the discussion.
GHayduke (formerly lojasmo)
@Richard mayhew:
Sort of depends on the mix. Hiring 50,000 mid and upper level administrators is a lot different from hiring 50,000 ECG technicians and nurses.
ETA: beat by Baud.
Tony P.
Why do we obsess over the fraction of GDP going to health care? I mean, 20% of GDP (or someday 50%) has to be spent on something, or it would not actually be GDP, would it? What would it be better spent on? Travel? Entertainment? “Financial services”?
Health care spending by all Americans is health care income to some Americans. (The latter are not all doctors. By any accounting I can think of, the actors in boner pill commercials on TV get paid out of the pot called “health care spending”.) If the people whose incomes derive from “providing” health care are higher-paid than the average American, so that 20% of GDP is going to 10% of the population, I can see how more health care spending translates to more income inequality. But the problem is the higher inequality, not the higher spending.
–TP
FlipYrWhig
@Tony P.: Personally, I would be happier if the “pot called health care spending” was more dedicated to… health. And if the GDP were comprised of the making of tangible, durable things, like solar panels and better containers to hold toxic sludge.
gelfling545
@RSA: The other part of that, ignored by most people, is that things cost more. Heat, electricity, desks, microscopes, volley balls, toilet paper: they all cost more than they did when we were kids. People see “education costs” & think that all the money is spent on teachers. There are multiple costs for education and many of them are the same costs that any business has or that we have at home.
pseudonymous in nc
Yep, it’s entirely about the mix.
I would very much like an entire subsector of healthcare jobs — medical billing staff — to go away. Those are decently paying jobs. People will lose good incomes. Frankly, I don’t care, because they are jobs that shouldn’t exist, and the fact those jobs exist makes our lives collectively worse.
Ruckus
@gelfling545:
This is a good point.
I had this discussion in a meeting once. Older gentleman could not understand why the cost of a service we provided to him was going up, why when he was a kid the cost of a loaf of bread was $.25! My answer to him was, yes I remember that and gas was under $.30/gal, etc, etc, did he want to make the same wage as when those prices were that? And that was then and this is now. What was amazing was that the other 15 customers in the meeting had all been expecting a price raise long before and that was totally unexpected.
Simple people want simple answers that they are comfortable with. Change is a huge monkey wrench in that, all their preconceived notions have to be thrown out.
patrick II
do you know what else causes higher costs in the health care industry?
Huge profits.
Huge profits for drug companies.
Huge profits for some doctors getting paid under the table to recommend devices.
Huge profits for Medcal device companies.
Huge profits for “non-profit” hospitals.
Huge salaries for ceo’s, administrators, stock holders.
Do you know who isn’t making a huge profit? Some lady who makes $27/hr to care, feed, bathe, help a person go to the bathroom, and be kind to some sick person.
Han
Sorry, but he’s being incredibly inarticulate (at best), and deserves to get kicked for it. Certainly not using the word “cost” as most people would understand it. And it gives Republicans yet another thing to bleat about on how Obamacare isn’t working.
Look, if my clinic doubles its staff because we’re now treating 20 people instead of 10, it’s disingenuous to say I’ve doubled my costs. I may be paying twice as many people, but I’m treating twice as many. And depending on how much work formerly done by an MD is now done by someone less expensive, my customers bills may actually go down even as I can make more profit. Anyone who would come along and proclaim to the world that my costs have doubled deserves a good crotch-kick.
Crusty Dem
@gelfling545: @Ruckus:
Which is why everything discussed here is as a percentage of the GDP. Of course, job numbers can’t be relative to the GDP because salaries of jobs is an uncontrolled variable. Which I believe is Richard’s whole point…
@patrick II:
To sum up, the core issue with the American health care system is capitalism. Health/life is not a commodity, but health care is (what would you pay for 10 more good years of life?). Add in all the layers of space between consumer and payment and you have a perfect storm for any MBA to get very, very rich.
Ruckus
@pseudonymous in nc:
Many jobs fall into this category. We no longer have much of a need for wooden spoke wheels and buggy whips. What is left can be filled by maybe one small company. What do that percentage of workers do now? Well we use a hell of a lot more wheels and tires and…… Unless you are a cave man you don’t need to carry a wooden bludgeon with you everywhere so the wooden bludgeon mfg are out of luck. Telephone operators? When was the last time you needed one of those? Used to be every time you made a call. Now you carry a computerized radio with you everywhere. Someone had to make those and sell them. Service? OK not so much on that end but they do exist.
gelfling545
I guess I’m a bit slow but I’m not getting the problem with more jobs=more costs. That’s true in any area but the jobs are added because there are people able to pay the costs who are not being served, employers not being notorious for hiring people out of charity, and the employers expect to recoup those costs at a profit.
Ruckus
@Crusty Dem:
Which is exactly the point that we are making as well. I agree with those knocking Larry. Twitter is not the place to be discussing complex subjects precisely because you have to reduce them to way less than they deserve.
piratedan
just like most other industries, healthcare is evolving as the advances in technology force changes in the workplace. Just as true for doctors and nurses and other health professionals as elsewhere. Tasks being automated but computers can only do so much and sometimes you have a strange cost-benefit analysis between paying three Lab Tech 60K each a year versus dropping half a million on an instrument that replaces what they do… but in return, you then have to maintain that device (service contract) and then pay (a vendor) to integrate it into your workplace. I don’t have the answers but not all health care jobs are created equal, just like everyplace else and perhaps the effort to simplify the field as Mr. Levitt has done is simply beyond 140 characters.
Mnemosyne (iPad Mini)
If VFX Lurker is around, she (?) needs to send her uninsured friend to the Covered CA page about the tax penalty for 2015 — I’m not sure he understands how much it could end up costing him next year:
http://www.coveredca.com/ShopAndCompare/2015/#totalCosts
They have extended the song-up date for 2015 insurance because a lot of people are surprised at how much the penalty actually is for them and are signing up for 2015. He and his wife may even be eligible for MediCal if they’re both un- or underemployed, so they should check and see.
Mnemosyne (iPad Mini)
@pseudonymous in nc:
Medical billing-type jobs will never go away entirely because even in a single provider system like the UK’s, doctors still have to report to the government what procedures or treatments they did for each patient. We hopefully will need a lot fewer of them because there will be a single set of codes, but the function of reporting to the payer what was done will still exist.
I can’t remember if it’s written into PPACA or not, but unified codes would really help a lot. If all insurers used the same coding for the same procedures, medical facilities wouldn’t need people who specialize in doing the billing for specific insurance companies.
Petorado
Evaluating individual variables that are only part of a complex equation and drawing sweeping inferences from them is the definition of foolishness — and punditry.
jl
Thought Levitt’s tweet lead to something by him that would expand on his tweet.But the tweet did not do that, so it means nothing.
The US health care provider professional mix is very heavily skewed towards specialists with very high salaries.
A higher proportion of healthcare workforce composed of primary care docs paid somewhat more than they are now, more highly skilled nurses, etc. would not mean more expensive health care as proportion of per capita GDP.
So, yeah, about the mix.
Origuy
My housemate had back surgery in September and subsequently had multiple complications, putting her in and out three different hospitals in the the next 5 months. She was in Valley, the county hospital here in Santa Clara; Stanford, a well-funded private non-profit; and Regional, a private hospital run by HCA. She’s on MediCal (California MediCare), which makes some difference in how she was handled, I believe.
Stanford was the least understaffed, as you might expect. Regional had just opened a new tower and was still operating the old one. She was in both areas. The old area was cramped; the new area was spacious, but still didn’t have enough nurses and aides to respond quickly to routine issues. Valley Med, despite its reputation in the area, usually had enough staff in my observations.
I could say a lot about MediCal’s pennywise and pound foolishness, but that’s for another time.