In another bit of grim news for the long-term prosperity of these United States, hospitals, medical practices, and related businesses are shedding jobs: 8,000 of them since April, more than in any other sector. For the year, there have been more than 41,000 layoffs at health-care firms. As Paul Davidson and Barbara Hansen of USA Today report, those are mostly hospital staffing reductions in response to reduced reimbursement rates for Medicare patients under the sequester and cuts for some providers under the Affordable Care Act. Private insurers, who are starting to experience a burning sensation after having gone to bed with the devil on Obamacare, are reducing payments, too.
The sequester, unfortunately, is likely to be repealed at some point, but the Independent Payments Advisory Board (IPAB) is required by the ACA to reduce the growth of Medicare spending. The American Medical Association sees the writing on the wall and assumes that the bulk of any savings will come in the form of reduced payments to providers — which it more or less has to, since the ACA forbids IPAB from raising Medicare premiums or rationing care. (We are going to ration care regardless of what the law says.) The more serious long-term problem is that the aging of our population means that more and more health care will be paid at Medicare rates in the coming years, putting more financial strain on hospitals.
So hospitals are cutting back.
That is going to be bad for health care, of course. But it is also a real problem for the economy, particularly on the employment front. Of the 27.3 million new jobs created in the United States between 1990 and 2008, virtually all of them were in “non-tradable” sectors, which is to say, in areas in which the need to be in a particular place makes it difficult to offshore labor. And almost half of those jobs were created in just two sectors: government and health care. There is more to health care than doctors and nurses: There are administrators, clerical staff, bookkeepers, armies of billing specialists, managers of ambulance fleets, etc., making for a very large economic footprint. Primary-care physicians already have seen their real incomes reduced, which is one of the reason why so many medical graduates go into specialty work rather than general medicine, but doctors remain fairly difficult to replace. Bob in maintenance . . . not so much.
Plastic surgeons still will be driving Ferraris, while wages and opportunities down toward the south end of the hospital org chart are likely to be under siege. But you want your doctors driving Ferraris: With apologies to my friends working downtown, the fact is that people who are smart, ambitious, and driven enough to become physicians are smart, ambitious, and driven enough to work on Wall Street or in other high-paying professions — and if they do, they can start making real money in their twenties rather than a decade later. When you’re being wheeled into the emergency room, you want the very best, not somebody who went into medicine because he didn’t get into a good law school or didn’t want to work hard enough to sell real estate. And if you are an otherwise sprightly 70-year-old getting a knee replacement, you don’t really want the guy for whom Medicare chump change is good enough. You want medical wages to be high.
Which they have been, lately. The number of jobs in health care grew 63 percent from 1990 to 2008, providing one in four of the jobs created in those years, and, equally important, health care is one of the few sectors that has shown relatively strong growth in inflation-adjusted wages in recent decades. Losing that means losing a big piece of the employment picture, not just in total jobs but in real income.
Which puts us in a difficult position: Cutting Medicare and Medicaid spending will have ill effects on the job market, but not cutting Medicare and Medicaid spending will bankrupt the country.
This is a textbook case of why you do not want government trying to steer an industry or fixing prices. It is basically the same story as that of the mortgage meltdown: Government decides it wants to encourage X, so it sets up programs and pours money (or, in the case of housing, credit) into it. Prices go up, people make economic decisions — about buying, selling, saving, investing, setting up businesses, choosing a major in college — based in part on conditions dependent upon that policy, and then the inevitable day comes when, quelle surprise, the policy turns out to be unsustainable. And the whole thing falls apart. It is impossible to coordinate resources in the absence of a real functioning market, which we do not have in health care, which the ACA will not establish in health care, and which we have not really had in health care since Lyndon Johnson & Co. stuck their collective snout into the market in the 1960s. IPAB requires savings in Medicare that are in the end arbitrary, as such political targets must always be, and if other attempts to manage Medicare outlays are any indication, those targets are going to fluctuate with the political weather.
In real-world terms, this means that somebody somewhere has just entered a night-school course to qualify for an X-ray technician’s job that isn’t going to be there, and somebody else is getting a pink slip rather than a bonus this Christmas.