Another Empty Promise of ObamaCare: More Jobs

By Thomas Miller

On September 23, the calendar signaled it was time for a six-month anniversary celebration of the Patient Protection and Affordable Care Act, aka PPACA. (No similar salute was planned for the end of the month, for the bill’s accompanying reconciliation provisions, which were signed into law a week later, on March 30). Not only did the honeymoon never get started, growing numbers of voters are checking out the terms of the pre-nuptial agreement and considering options ranging from trial separation to annulment.

With the Obama administration suffering low approval ratings not just for botched healthcare reform, but also for a sluggish economy, what was it to do? Perhaps try out the latest audacity of hype and spin PPACA as a jobs-creating machine.

That was the backdrop to my appearance several weeks ago on a panel at a “Prescription for Growth” event organized by the National Journal. The starting point was that healthcare is projected to be one of the fastest-growing segments in the job market in coming years. The question was whether the recent healthcare legislation will accelerate growth in health-related sectors of the economy and whether the right jobs are being created.

The event opened with a health politics stump speech by White House health policy czarina Nancy Ann DeParle, full of the recycled myths of PPACA’s savings, such as fewer emergency room visits by the uninsured; less cost shifting to private premium payers; lower administrative costs by insurers; preventive care benefits without cost sharing; crackdowns on unjustified premium hikes, arbitrary rescissions of existing coverage, and apparent refusal to cover anyone who ever gets sick; and so on ad nauseam. Ironically, there was no discussion at this point of how the legislation actually would encourage improved delivery of healthcare itself, just the old litany of charges against private insurers and recitation of the bountiful supply of new mandated benefits. It was briefly accompanied by a contorted dance that criticized higher health spending yet claimed it would produce more jobs. (Perhaps the solution is many more lower-paying ones, given the PPACA’s continued reliance on future reimbursement level reductions for various healthcare providers?) Then again, double counting and cognitive dissonance has never troubled this administration, particularly when it comes to “health reform.”

In any case, the point of discussion for the next panel was what all of this means for job growth. Indeed, PPACA backers often assert that the Bureau of Labor Statistics (BLS) predicts that 3.2 million new jobs will be created in the health sector between 2008 and 2018. Too bad that the basis for that projection was first released to the public in November 2009 and pre-dates any effects of the new health legislation enacted into law last March.

I pointed out that it should not be surprising that a health sector that has consistently grown several percentage points faster than the rest of the economy and that remains very labor intensive should be expected to produce a significant number of “new” jobs. The BLS predictably predicts that the future will continue to look remarkably like the data trail of this recent past. However, even the net increase in health spending projected for the supposedly budget-deficit-reducing PPACA remains relatively modest over the next decade. The Centers for Medicare & Medicaid Services actuaries project that figure will be slightly above $300 billion (although more speculative worst-case projections are higher), which is relatively inconsequential for job growth impact in the vastly larger overall U.S. economy.

So, while the Obama administration roosters can crow about the future appearance of new jobs, even though those were likely to be created over the next decade anyway, even such standard forecasts should be taken with more than a few grains of salt.

For example, the administration’s own Council of Economic Advisors (CEA) noted in a July 2009 report that “all interpretations of future labor market changes should be considered with caution.” Neither BLS nor industry employment projections foresaw the decline in the financial services and construction industries several years ahead of time, nor did they fully anticipate the expansion of the Internet in the early 1990s. Conventional job growth projections are, by definition, based on the jobs of “today” rather than “tomorrow.” The CEA report observed that in 2003, one quarter of the current workforce was employed in jobs that were not even listed among the Census Bureau’s occupation codes in 1967.

Noted labor market expert Richard Freeman has cautioned that BLS occupation forecasts work better in periods when the economy does not undergo any dramatic changes and when technological change does not greatly alter demand for skills. They fail to foresee big changes in the demands for occupations likely to involve new skills. Hence, “projections of future demands for skills lack reliability to guide policies on skill development.” Globalization and unexpected changes in the composition of output among industries further complicate the labor forecasting task.

In the healthcare workforce sector, the history of past projections and planning by committee is even more checkered—particularly when it comes to the future supply of physicians. For example, the Graduate Medical Education National Advisory Committee, created in 1976 by the Secretary of Health, Education, and Welfare (the pre-cursor of HHS) predicted in the early 1980s a future oversupply of more than 145,000 physicians by the year 2000. This and other similar projections of a future physician surplus lacked reliable information on how medical practice changes would affect productivity or retirement patterns. They failed to account for the rise of non-physician specialists and levels of increasing specialization in medical residency programs. A number of inaccurate medical workforce projections from several decades ago mistakenly assumed that fully integrated HMOs and managed care networks would continue to grow and keep lowering the ratio of physicians to population.

So, if one eschews the central planning pretense of driving ahead while keeping one’s eyes fixed on a rear-view mirror to produce decade-long labor forecasts, what might be a more limited but effective approach? Allowing competitive markets to raise labor compensation to address supply imbalances, investing more broadly in the development of multi-skill human capital, providing better (not necessarily more) schooling and job training, increasing immigration in areas with rising labor demand, improving the availability of useful (but less presumptuous) occupational information, claiming less unmerited political credit for all of the above, and dealing more directly with other policy issues (beyond the reach of education and training alone) that distort labor costs just might provide a better way for market-based supply and demand to adjust to each other.

Unfortunately, that’s not what guides claims of politically produced job growth. They ignore the opportunity costs of foregone investment elsewhere, the deadweight losses to the economy in extracting additional resources from the private sector through taxation, and the difference between redistributing wealth among industry sectors and local markets and creating more of it for the overall economy.

Nevertheless, voters were promised by House Speaker Nancy Pelosi at last winter’s White House summit on healthcare reform that the soon-to-be-enacted bill “is not only about the health security of America. It’s about jobs. In its life it will create 4 million jobs—400,000 jobs almost immediately; jobs, again, in the healthcare industry, but in the entrepreneurial world as well.”

The actual early returns on healthcare reform’s investment in job growth look different. When the Congressional Budget Office (CBO) released its annual mid-session update on the economy and federal budget, it concluded that the PPACA would reduce the amount of labor used in the economy by roughly half a percent, primarily by reducing the amount of labor that workers choose to supply. CBO attributes most of this effect to the substantial expansion of Medicaid and the provision of health insurance subsidies for coverage in exchanges (both of which do not fully kick in until 2014). Increased public subsidies for health insurance will encourage some people to work fewer hours or to withdraw from the labor market. In addition, because those subsidies phase out as income rises, the resulting increase in effective marginal tax rates will also discourage work. Other changes to the insurance market under the PPACA should increase the number of older workers choosing to retire earlier. Another disincentive to hire more workers noted by CBO involves the size-threshold (50 or more full-time employees) for penalties to be imposed on employers that do not offer insurance (beginning in 2014). The effects will include less hiring of low-wage workers, more hiring of part-time or seasonal employees, and efforts by small firms to stay below the 50-employee floor.

The early labor market response to passage of the PPACA last March points in even more of a downward direction. My colleague Kevin Hassett observes in a recent National Review article that a trend toward net job growth (the three-month moving average of job creation vs. job destruction) coming out of the severe recession of 2008 and 2009 began to unwind right about the time when the new healthcare bill became law.

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There is also some irony in touting the benefits of simply priming the pump harder to produce more rapid growth in jobs in the healthcare sector, without questioning whether such spending actually delivers better value to consumers, insurance premium payers, and taxpayers. For example, as of early 2010, the only metropolitan area gaining jobs since the onset of the recent recession to the fourth quarter of 2009 was McAllen, Texas. That area also had the highest job growth of any metropolitan area over the last decade. But what’s wrong with this picture? Recall the New Yorker article last year by Atul Gawande on runaway entrepreneurial growth in wasteful health spending in McAllen, which was widely touted by the Obama White House as an illustration of why health spending incentives must be changed under the new health reform bill?

Even though a good bit of the job growth in McAllen has been attributed to rising oil prices, a smaller decline in real-estate prices, and its border town benefits from NAFTA, it’s also the case that healthcare employment there grew by 71 percent. Sometimes, healthcare payers and patients get too much of a once-good thing, when misincentives drive up health spending and healthcare jobs, but don’t deliver improved health.

Nevertheless, the henhouse of healthcare central planning is primed to lay some new eggs, well beyond just the latest rounds of augmented taxpayer subsidies and loan programs in the PPACA, to help train the next generation of healthcare workers (while serving the political appetites of their related interest groups). The new law also establishes a National Healthcare Workforce Commission to evaluate education and training activities, encourage “innovation,” and ultimately become the “dominant force in driving and shaping the nation’s healthcare workforce policies.” Translation: Its mission will be to ensure that current shortsighted mistakes in matching labor supply to demand become even more centralized, more politicized, much larger, and much harder to self-correct. The initial 15 members with staggered terms for this staggering task were just announced yesterday.

The latest trendy favorite toys for health workplace planning within the PPACA center on targeting greater growth of primary care doctors and expanding federal support of community health centers. Although there certainly are good arguments for favoring both initiatives to some degree, placing large one-sided bets on them in isolation is likely to disappoint us once again.

A new study by researchers at the Dartmouth Atlas Project cautions that simply increasing access to primary care, either by boosting the number of primary care physicians in an area or by ensuring that most patients have better insurance coverage, is, by itself, not a guarantee that a patient will get recommended care or experience better outcomes. Without more effective integration and coordination with other healthcare providers, a larger supply of primary doctors will just become the latest single silver bullet of quality improvement that misses its target. In a similar vein, Harvard health researcher Michael Chernew and his coauthors recently found that increasing the proportion of primary care practitioners within the physician workforce is not associated with lower rates of health spending growth.

Expanding the growth and use of federally qualified community health centers also has received much support in health policy circles over the last decade, beginning with the Bush administration. The PPACA would devote an additional $35 billion to such centers from fiscal 2010 to fiscal 2015, and index annual increases in funding for years beyond that period. The centers emphasize the delivery of taxpayer-subsidized primary care in underserved areas. More recently, they have been promoted by some as incubators of local economic development and job growth.

Alternative solutions to other poorly performing safety net programs for healthcare access, such as Medicaid, remain wanting, but some community health centers have demonstrated real promise in delivering accessible, good-quality, basic care in low-income areas. However, a few notes of caution remain before we reload with another round of irrational exuberance funded by taxpayers. The underlying data and empirical evidence to demonstrate the actual track records of most community centers remain limited and unclear. Older statistics suggest that only 27 cents of every additional federal dollar directed to community health centers delivers additional (and otherwise uncompensated) healthcare to the uninsured. In part, this reflects the role of community health centers in filling the delivery system gap created by expanded Medicaid coverage that tries to reimburse medical providers below cost, let alone at market rates.

The purported multiplier effect of community health center spending in producing other economic activity nearby, even by the most enthusiastic boosters of community health centers, remains rather low—particularly when compared to other alternative investments that could have made instead in the same areas. The more important unknown involves what taxpayers and community health center patients actually are getting for this investment in terms of health outcomes. Indeed, the Obama administration’s own Department of Health and Human Services recently admitted that “there are no studies that examine how this increase in capacity translated to access to care for low-income populations in the communities where health centers expanded.” So it formally asked prospective researchers in late August for proposals to answer that question.

At the six-month mark, ObamaCare and the PPACA remained a prescription for growth in all the wrong places—growth in economic uncertainty, higher future taxes, intrusive regulation, unaccountable bureaucracy, barriers to business expansion, unfulfilled promises, and exaggerated claims. Its ambitions to redesign and redirect the size and shape of the future healthcare workforce have drawn much less attention thus far, but they carry the same fatal genetic defects of central planning. Our economy will have to find a way to restore its growth in spite of ObamaCare, not because of it.