• A brief comment on health care layoffs

    Hospital systems in my area, like hospital systems all over the country, are laying off people. They are also often blaming this on “Obamacare”. This has led to many of my friends, especially those who lean to the right, to ask me (often sarcastically) if this is what people “wanted”.

    The larger question is whether this is Obamacare’s “fault”. In a literal reading of the law, no, because there’s nothing in there that tells hospitals to fire people. But in a larger sense, yeah, there’s some blame to go around. But it’s important to understand why. It’s because Obamacare seems to be working to slow healthcare spending down.

    And that’s good! It’s what everyone, from both sides of the aisle, says they want. Almost everyone agrees that we spend too much money on health care, and that we should spend less. And now we are! Did you think that would have no consequences?

    We don’t take all of our health care spending and put it in a pile and burn it. All of that money goes into other people’s bank accounts. It’s wages, and profit, and benefits. It goes to doctors, and nurses, and janitors in hospitals, and execs, and pharma reps, and medical device designers, and on and on. One man’s “waste” is another man’s “salary”. If we spend less on health care, there’s less money to go to wages and profit. Period. You can try to operate leaner, but eventually, you’re still taking money out of someone else’s pocket.

    So if we manage to spend less on health care, it doesn’t matter if we do it by the most free market method, or by the most price-setting regulated method. The result will pretty much be the same in the end. Someone is going to make less or be fired. You can’t manage the same workforce at the same salary on a significantly smaller amount of money.

    So if you profess to like lower health care spending, then this is what happens. You can dislike Obamacare for any number of rational reasons. But if you are hating on it for this reason, and you also think we spend too much on health care, you’re being a bit irrational.

    P.S. In the last few years, during the largest recession in known history, while pretty much every other sector was shedding jobs, health care was adding them like crazy. Did we not think this might come back to burn us a few years later?

    @aaronecarroll

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    • Thank you for this sane analysis of these layoffs.

    • In a similar vein, I was told last week that “the doctors over at the hospital” hate Obamacare. The hospital has no doctors. It pays a private practice to staff the Emergency Department, it pays a private radiology practice to manage the Radiology Department. It does employ the nursing staff and some of the techs and of course the administrators and billing clerks. I imagine that lowering healthcare costs would disturb many of these people but not because it “increases taxes on rich people and reduces subsidies to private insurers in Medicare in order to help low-income Americans buy health insurance” [Ezra Klein quoted by Paul Krugman].

    • I must disagree slightly with this: “Almost everyone agrees that we spend too much money on health care, and that we should spend less.”… I think much of the analysis compares what we spend _when compared to quality_ and _per person_. Those are important additions.

      But if we expand the base of people getting care and the overall quality of care per dollar, the gross amount that is spent in the system (to the doctors, hospitals, and people losing their jobs) may not necessarily be the issue, and does not obviously need to decline.

      It’s doubtful this can be done without some reorganizations and layoffs, and it could easily cause people to reduce compensation, but it’s not as simple as less money = less jobs. Widespread insurance and price transparency could mean MORE money, simply directed differently. Similar result, but a slightly different underlying cause.

    • Actually, it matters significantly whether we constrain healthcare pricing through competition or through price controls and central planning. The difference between the two approaches is the difference between prosperity and freedom, on the one hand, and stagnation, decline, and authoritarian government on the other.

      • The amount spent either way isn’t different and you knew (or should have known) that’s what was being said.

        Go make speeches at Freep, no one here is interested in your creepy libertarian fantasies.

        • Actually, either the amount spent or the quality will be different. If the 20th century proved anything, it’s that centrally planned economies are vastly inferior to economies based on markets and competition.

          By the way, I don’t know what Freep is, but if talking about concepts such as freedom, markets, and competition is “creepy,” then this country is in even worse shape than I thought.

      • That’s not what the post is about.

        You are talking about how reduced spending is achieved, and the pro/con of each.

        He is talking about one specific effect that happens once that reduced spending has been achieved.

        Two totally seperate topics.

        It’s like you saw the phrase “does not matter”, and got upset, and lost sight of the point of the article: If lower spending has occured, REGARDLESS OF ORIGIN, then either lower wages or less jobs will occur. That’s true no matter how you achieve the lower spending.

        • Well, my point is that total spending and hiring is not necessarily reduced when firms in a market reduce costs.

          In a competitive market, if firms lower their costs, we can expect a downward shift in the supply curve resulting in lower prices and GREATER output. From this, it’s not possible to automatically conclude that total revenue (i.e., total spending) or hiring will be lower. It all depends on the shape of various curves.

          So Dr. Carroll is jumping to conclusions. Now, if you all want to assume that competition and central planning give the same result, go ahead, but what’s your point? It’s almost like a tautology which doesn’t tell us anything other than what you’ve defined in the first place (i.e., that ACA will give us the same results as competition).

          • Sorry. Spending is revenue. I’m not discussing profits. All money eventually goes into someone’s pockets. It’s 18% of GDP. If we lower that, it’s going to have an effect!

    • This is the same argument for printing $600,000 at interest for each $30,000 wage job.

      What happens is that the whole system is inflated unsustainably.

      Yes, reducing waste in healthcare or any field reduces employment, however otherwise the incentive is to print TO WASTE, with the resulting rewards of interest and labor power differential guaranteed to a small subset of the population.

      As price inflation increases, the lower end can barely meet subsistence and more money at interest is printed. Thus the ACA is born to subsidize the unproductive expenses ( administrative costs, profit, a risk premium even though the risk is assumed by the government, taxation) rather than healthcare objectives.

      We are able to do this only because we have the reserve currency. No other country is allowed this privilege to waste for long and the rest of the world is tired of our privilege.

      Healthcare IS a community priority. Preventative healthcare being the foremost way to reduce the cost of healthcare as a percentage of REAL production.

      However if as scientists, engineers, and physicians we are able to prevent disease this will reduce income to those who intervene/treat the disease. The financial incentive then is NOT to prevent disease and encourage health. Using your argument, the provision of health intervention provides someone a job and if jobs are valued by society MORE than outcomes then jobs will be created with minimal to no value.

      All healthcare is not valueless, but the more and more capitally intensive healthcare gets, the more and more debt is required, which benefits the debt holders financially. If outcomes are not prioritized, which they are not, this becomes a leech on productive society for private gain.

      Healthcare is not war, as war is entirely useless production. But inefficient healthcare consuming 20% of the productive capacity is a war on producers, who are struggling to survive.

    • The jury is still out on whether Obamacare will slow health care spending. Its hard to attribute what’s happened in the recent past to a piece of legislation that just took effect a few days ago. I’m hopeful though.

      Also, health care providers don’t necessarily have to cut a single job if the demand for heatlh care services is growing. They can take on higher volumes, which are inevitable even after Obamacare, with the same workforce.

    • There was some fear that the ACA would create too much demand for medical services. So which is it? I suspect that the net effect is a put to greater results per dollar spent. There might be layoffs in one part of the medical services employment markets and increases in others. A hospital or a group of hospitals in one area is not indicative of the whole health care market.

    • No no no, Aaron. It’s not the good health spending on *my* healthcare that should get cut. It’s the spending on all those undeserving others that should be cut.

      Crucial difference.

    • The real question about cutting medical spending is this:

      will the cure (that includes unemployment in the health sector) be worse than the disease (rising insurance costs for everyone)?

      Phrased another way:

      Those hospitals which were allowed to add staff and raise salaries almost without control have become important employment centers — in Pittsburgh, Cleveland, Boston, Baltimore and many other cities more numerous to name.

      Those hospitals also cause high insurance premiums, and sometimes drive uninsured or partly insured patients into bankruptcy.

      Will the US be better off with cheaper hospitals and fewer high paying hospital jobs, but cheaper insurance and (indirectly) better jobs in other sectors of the economy?

      I do not know. Maybe this is just an even trade. Comments welcome!

    • This really helped me think differently about healthcare spending. It made me think that if US healthcare spending were a separate country, it would have around the sixth highest GDP in the world. But more importantly, its growth rate has been more like China than that of the US, and it shows. For years we have been telling people to go into “something, anything” healthcare related. There has been a building boom in shiny new, state of the art facilities. Like China, there have even been medical centers being built in anticipation of coming demand. It’ll be hard to adjust to lower cost increases if they hold, but I agree, it is not a bad thing if you care about medical costs.

    • “So if we manage to spend less on health care, it doesn’t matter if we do it by the most free market method, or by the most price-setting regulated method. The result will pretty much be the same in the end. Someone is going to make less or be fired.”

      Even if you accept the final proposition here, the manner in which you reduce spending matters a great deal for everyone who consumes health care.

      Under a free market regime, the only way you’d see a decrease in health care spending is if demand fell, efficiency in the sector increased, or both. If demand fell we’d see capacity shrink, and if demand stayed constant that’d mean efficiency increased and we could care for more people with the same or fewer dollars.

      When you cut spending by legislative fiat, all you get is decreased capacity – e.g. a system that can’t take care of as many people. In the first case you get increased efficiency along with less income/employment in the health care sector. In the second case you lose capacity *and* income/employment. Big difference.

      • You can make arguments about how the changes will affect what we actually get in terms of access and quality, but less spending means less money going into the system. All of that money, waste or no, eventually trickles down to people. It’s doesn’t disappear. Less money to people means lower salaries or fewer jobs.

    • I applaud this website’s philisophical devotion to evidence-based analysis. However, my impression is that you fail to rigorously apply this principle to all of your own posts/comments, yet use it as a club to bat down comments from folks with different priors.

      So here’s my challenge to you…justify with evidence this statement from your post: “It’s because Obamacare seems to be working to slow healthcare spending down.”

    • This is a post that almost all people who have thought about the subject agree with. If PPACA is causing a reductions in healthcare organization’s staff that is a good thing.

      BTW to be clear I think that they bending for spending curve is due to higher deductibles and more out of pocket spending rather that PPAVA but I think you were saying that if others argue that it is because of PPACA…

    • JB and Alsan have it correct. Price controls always lead to shortages of the service or commodity being controlled. It doesn’t matter if it’s food, gasoline or healthcare services. Henry Hazlitt devoted a chapter to this in his economics primer, “Economics in One Lesson”, 1947. Further research on this can be done easily at fee.org or mises.org.

      I see the Affordable Care Act as a price control at it’s foundation. Therefore, the consequences are predictable. It’s a law of economics.

      • the effect of the spending reductions and their origin on the market is a totally seperate topic. that is why its irrelevent and the author stated such.

        you can argue all day long til you’re blue in the face about the origin or method of spending reduction, and it does not change that simple fact. That is why it doesnt matter. Alsan and JB are conflating two seperate topics/issues into one, and ignoring the actual point of the blog post. They say the phrase “does not matter”, and now that’s all theyre paying attention to, and ignoring the main point.

        The point was that less money in an industry means either less jobs or less wages. period. thats basic economics. that happens no matter how spending is reduced.

        • The larger argument was that you can’t hold job losses against the ACA because achieving an equally large spending reduction through increased efficiency deriving from better management, technological innovation, etc would lead to equally large reduction in employment if we agree to the conjecture that everything – like demand – would stay constant even if the prices for medical services declined.

          This is a puzzling argument – roughly akin to saying that you can’t be critical of a system of agricultural price controls that’s triggering layoffs of farm workers and leading to farm closures…because increased agricultural productivity that enabled farmers to grow the same amount of food with less manpower would eventually to the same thing. Huh? Even if that argument were valid, it would only be cogent if opponents of the ACA were solely interested in maintaining spending and employment in the healthcare sector at existing levels. They aren’t.

          When you impose spending cuts you lose output unless there’s a compensating increase in efficiency. Maybe that will materialize and maybe it won’t. In the meantime – there’s no upside for society or the sector that’s shedding jobs. When price competition, transparency, and innovation lead to reduce spending there’s no loss in capacity and everyone has more money to save, invest, or spend on everything else. Society is much better off in the second case.

          Secondly, the argument assumes that market processes that lead to increased efficiency and lower prices won’t lead to any increases in demand that would sustain spending at levels necessary to maintain employment at existing levels. It’s possible that less expensive medical care wouldn’t lead to increased demand for medical care, but based on past trends that’s rather unlikely.

          A policy that reduces our capacity to care for sick people is vastly worse for society than one does that not, even if the number of job losses is the same.

    • The notion that we can expect the same results whether the economy is market based versus more centrally directed is bothersome. If anyone is interested in a longer (500 words) critique of this, check out my post at http://alsanblog.com/2013/10/04/competition-deniers/.