Health Services Research: Rising healthcare costs hurt U.S. economy
The RAND Corporation has linked the rapid growth in U.S. healthcare costs with job losses and lower output among industries that commonly provide workers with health insurance, according to a study published online July 13 in Health Services Research.
Researchers examined the economic performance of 38 industries from 1987 through 2005 and compared changes in employment, gross economic output and the value added to the gross domestic product for industries where a large number of workers have employer-sponsored health insurance with those industries where few workers have job-based health insurance.
The analysts found that, after adjusting for other factors, industries where a larger percentage of workers received employer-sponsored health insurance had significantly lower employment growth during the study period than industries where health benefits were less common. Industries with a larger percentage of workers receiving employer-sponsored health insurance also showed lower growth in their contribution to the gross domestic product over time.
"This study provides some of the first evidence that the rapid rise in healthcare costs has negative consequences for several U.S. industries," said lead author Neeraj Sood, a senior economist at RAND. "Industries where more workers receive employer-sponsored health insurance are hit the hardest by rising healthcare costs."
The study attempts to assess the economic impact of "excess" growth in healthcare costs on U.S. industries. Excess growth is defined as the increase in healthcare costs that exceeds the overall growth of the nation's gross domestic product.
The authors noted that the rapid growth in U.S. healthcare costs and health insurance premiums over the past two decades has raised concern that the trend is harmful to the nation's economy. Many observers argue that rapidly rising health insurance premiums force employers to increase employees' total compensation, since employers cannot easily reduce wages to offset premium increases.
For some employers, explicit contracts such as those with labor unions may preclude wage cuts; other employers may be prevented from reducing wages by the need to pay competitive wages or a desire to avoid damaging worker morale, the report found.
Pressure to increase compensation, in turn, may lead employers to reduce health benefits, cut employment and raise prices, ultimately resulting in lower output and profits. Industries where large percentages of workers receive employer-sponsored health insurance face more pressure to increase compensation and as a result are more likely to face adverse consequences from healthcare cost growth, according to the study.
"U.S. employers have limited wage growth and reduced health benefits to deal with rising health insurance premiums, but such strategies have not completely offset the growing burden of healthcare costs," said co-author José J. Escarce, MD, a RAND researcher and a professor at the David Geffen School of Medicine at the University of California, Los Angeles. "Job losses and worse economic performance have been the additional consequences for industries that provide insurance to most of their workers."
RAND researchers underscored that their findings do not necessarily mean that rapid growth in healthcare costs results in large job losses in the overall economy, since losses in industries that provide a high proportion of their workers with employer-sponsored insurance are likely to be at least partially offset by gains in industries that provide a low proportion of their workers with insurance.
"Nonetheless, our findings clearly show that the rapid rise in healthcare costs has a measurable impact on many industries, and that it leads to a redistribution of workers from industries that provide insurance to their workers, such as manufacturing, to those that do not provide insurance," Escarce said.
Researchers examined the economic performance of 38 industries from 1987 through 2005 and compared changes in employment, gross economic output and the value added to the gross domestic product for industries where a large number of workers have employer-sponsored health insurance with those industries where few workers have job-based health insurance.
The analysts found that, after adjusting for other factors, industries where a larger percentage of workers received employer-sponsored health insurance had significantly lower employment growth during the study period than industries where health benefits were less common. Industries with a larger percentage of workers receiving employer-sponsored health insurance also showed lower growth in their contribution to the gross domestic product over time.
"This study provides some of the first evidence that the rapid rise in healthcare costs has negative consequences for several U.S. industries," said lead author Neeraj Sood, a senior economist at RAND. "Industries where more workers receive employer-sponsored health insurance are hit the hardest by rising healthcare costs."
The study attempts to assess the economic impact of "excess" growth in healthcare costs on U.S. industries. Excess growth is defined as the increase in healthcare costs that exceeds the overall growth of the nation's gross domestic product.
The authors noted that the rapid growth in U.S. healthcare costs and health insurance premiums over the past two decades has raised concern that the trend is harmful to the nation's economy. Many observers argue that rapidly rising health insurance premiums force employers to increase employees' total compensation, since employers cannot easily reduce wages to offset premium increases.
For some employers, explicit contracts such as those with labor unions may preclude wage cuts; other employers may be prevented from reducing wages by the need to pay competitive wages or a desire to avoid damaging worker morale, the report found.
Pressure to increase compensation, in turn, may lead employers to reduce health benefits, cut employment and raise prices, ultimately resulting in lower output and profits. Industries where large percentages of workers receive employer-sponsored health insurance face more pressure to increase compensation and as a result are more likely to face adverse consequences from healthcare cost growth, according to the study.
"U.S. employers have limited wage growth and reduced health benefits to deal with rising health insurance premiums, but such strategies have not completely offset the growing burden of healthcare costs," said co-author José J. Escarce, MD, a RAND researcher and a professor at the David Geffen School of Medicine at the University of California, Los Angeles. "Job losses and worse economic performance have been the additional consequences for industries that provide insurance to most of their workers."
RAND researchers underscored that their findings do not necessarily mean that rapid growth in healthcare costs results in large job losses in the overall economy, since losses in industries that provide a high proportion of their workers with employer-sponsored insurance are likely to be at least partially offset by gains in industries that provide a low proportion of their workers with insurance.
"Nonetheless, our findings clearly show that the rapid rise in healthcare costs has a measurable impact on many industries, and that it leads to a redistribution of workers from industries that provide insurance to their workers, such as manufacturing, to those that do not provide insurance," Escarce said.