Rising Health Care Costs Impact Non-Health Care Employment, Study Finds
Rising health care prices in the U.S. are causing employers outside the health care sector to reduce their payroll and decrease their number of employees.
Published on June 24 as a working paper by the National Bureau of Economic Research (NBER), the study found that increases in health care prices led non-health care employers to cut jobs, particularly those held by middle-class workers. For the average county, a 1% increase in health care prices would result in an annual aggregate income reduction of approximately $8 million.
The research team included economists from Yale, the University of Chicago, the University of Wisconsin-Madison, Harvard University, the U.S. Internal Revenue Service (IRS), and the U.S. Department of the Treasury.
To explore the impact of rising health care prices on labor market outcomes, the researchers analyzed insurance claims data from about a third of adults with employer-sponsored insurance, health insurance premium data from the U.S. Department of Labor, and IRS data from every U.S. income tax return filed between 2008 and 2017.
They used this data to track how an increase in health care prices—such as a $2,000 increase on a $20,000 hospital bill—affects health spending, insurance premiums, employer payrolls, income, and unemployment in counties, as well as federal tax revenue.
The study used hospital mergers as a case study to assess the effect of price increases. Between 2000 and 2020, there were over 1,000 hospital mergers among the approximately 5,000 U.S. hospitals. The authors previously found that about 20% of these mergers would be expected to raise prices by reducing competition, based on guidelines from the Department of Justice and the Federal Trade Commission. These mergers raised prices by an average of 5%.
"We can use our analysis to estimate the effect of hospital mergers," said Stuart Craig, an assistant professor at the University of Wisconsin-Madison Business School. "Our results show that a hospital merger that raised prices by 5% would result in $32 million in lost wages, 203 lost jobs, a $6.8 million reduction in federal tax revenue, and a death from suicide or overdose of a worker outside the health sector."
The study also had another key finding: It indicated that rising health care prices cause firms to let go of workers, leading to increased government spending on unemployment insurance and reduced federal tax revenue.
