SC Connecticut News

Rising health care prices in the U.S. are leading employers outside the health care sector to reduce their payroll and decrease their number of employees, according to a new study co-authored by Yale economist Zack Cooper.

The study, published June 24 as a working paper by the National Bureau of Economic Research (NBER), found that when health care prices increased, non-health care employers responded by reducing their payroll and cutting the jobs of middle-class workers. For the average county, a 1% increase in health care prices would reduce aggregate income in the area by approximately $8 million annually.

The study was conducted by a team of leading 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.

“When health care prices go up, jobs outside the health care sector go down,” said Cooper, an associate professor of health policy at the Yale School of Public Health and of economics in the Faculty of Arts and Sciences. “It’s broadly understood that employer-sponsored health insurance creates a link between health care markets and labor markets. Our research shows that middle- and lower-income workers are shouldering rising health care prices, and in many cases, it's costing them their jobs. Bottom line: Rising health care costs are increasing economic inequality.”

To better understand how rising health care prices affect labor market outcomes, the researchers brought together insurance claims data on approximately a third of adults with employer-sponsored insurance, health insurance premium data from the U.S. Department of Labor, and IRS data from every income tax return filed in the United States between 2008 and 2017. They then used these data to trace out how an increase in health care prices — such as a $2,000 increase on a $20,000 hospital bill — flows through to health spending, insurance premiums, employer payrolls, income and unemployment in counties, and tax revenue collected by the federal government.

“Many think that it’s insurers or employers who bear the burden of rising health care prices. We show that it’s really the workers themselves who are impacted,” said Zarek Brot-Goldberg, an assistant professor at the Harris School of Public Policy at the University of Chicago. “It’s vital to understand that rising health care prices aren’t just impacting patients. Rising prices are hurting employment outcomes for workers who never went to the hospital.”

For this study, authors used hospital mergers as a vehicle to assess price increases' effects. From 2000 to 2020 there were over 1,000 hospital mergers among approximately 5,000 U.S. hospitals. In past work they found about 20% should have been expected to raise prices by lessening competition according to merger guidelines from DOJ and FTC; these mergers raised prices on average by 5%.

“We can use our analysis to estimate hospital mergers' effect,” said Stuart Craig from UW-Madison Business School. “Our results show a merger raising prices by 5% would result in $32 million lost wages; 203 lost jobs; $6.8 million reduction federal tax revenue; death from suicide or overdose outside healthcare.”

The study also showed rising healthcare costs lead firms letting go workers; thus increasing government spending on unemployment insurance while reducing federal tax revenue.

“It’s vital pointing out hospital mergers raise federal spending while lowering tax revenue,” said Cooper.“When U.S healthcare sector's prices rise it's net negative for economy—leading fewer jobs & precipitating consequences associated with unemployed workers.”

Other authors include Lev Klarnet from Harvard University; Ithai Lurie from US Department Treasury; Corbin Miller from IRS.

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