Predicting Health-Care Employment

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Published projections of health-care employment into the next century are useful for companies in the industry. But they can't take into account the greatest influence on the market--the fickle nature of government health-care policies.

Few industries in the U.S. are as profoundly affected by government policy as health care.

A breakfast-cereal company can plan for the future by evaluating the types of cereal preferred by different consumer groups, and how those groups may grow and change. Government regulations on trucking or agricultural subsidies affecting the price of sugar may play a role in future sales. But customers are the greatest determinants.

Health care is a different matter altogether. The demand for health-care services is determined by government ideas, not direct consumer demand. That's because government spending accounts for 47 percent of all health-care expenditures. Companies that are in the business of providing health-care services, education, or supplies to providers have a tough time projecting their futures, since politics, rather than market forces, are at work.

While free-market capitalism is the prevailing ideology for American commerce, the health sector has some rare qualities that make most economists concede that government intervention is necessary. This might seem strange. If private practitioners are able to provide health services to the entire U.S. population, why should government interfere at all?

The reason is that not everyone can afford the health care they vitally need. Economists call this condition market failure. Market failure is defined as the inability of consumers to meet market prices for a service they both want and need. In our country, health care is in short supply in many underserved markets. And where services are plentiful, multiple forces keep prices beyond the reach of most consumers. In the rule book of modern-day economics, governments are justified in interfering with the economy when market failure occurs.

The necessity of government intervention in the U.S. health-care system is agreed upon by both politicians and ordinary citizens, since few think medical care should be available only to the wealthy. Yet there is no consensus on the appropriate level of intervention. Witness the failure of the Clinton administration's 1994 initiative to restructure the entire system. The public lost its zeal for change then. But in the future, it is likely that reforms will occur, since maintaining the status quo threatens to bankrupt the government. For now, reform will probably fall short of government-mandated universal coverage. But public health-care programs are unlikely to be eliminated entirely.

The Meaning of Government Dollars The recent history of government spending on health care shows how important these dollars are to the industry and its employment. Government spending often determines how many consumers can afford health services, and hence, how many jobs are created. Winners and losers--whether individuals or corporations--are made with every policy change. The magnitude is enormous, since health care comprised 14 percent of the Gross Domestic Product in 1996.

Between 1993 and 1996, government health expenditures increased steadily from about 10 percent to 14 percent a year, reaching a high of $483 billion in 1996, according to the Health Care Financing Administration. Total employment in the health sector increased 3 percent annually over the period, to 9.5 million workers. Government spending equaled $51,016 for every health-care job. When private expenditures are included, per-job spending was $109,312.

Not all fields in health care enjoyed employment gains from the rise in government spending. The real beneficiaries were home health-care services (up 42 percent between 1993 and 1996), and three distant runners-up: officesand clinics of physicians (11 percent), dentists (10 percent), and nursing homes (9 percent). Employment in private hospitals grew much more slowly than other sectors, at 1 percent between 1993 and 1996.

Future decreases in government health-care spending would likely be met by some increases in the private spending. For instance, if Medicare was curtailed, individuals who could afford certain services or private coverage would spend more. But their spending couldn't begin to make up for the loss of government dollars. If less government money were spent on health care, employment would fall. Conversely, more money spent means more jobs.

Looking to the Future There's no crystal ball for predicting whether government spending will change in the future. However, a model developed for the Department of Health and Human Services can assist health-care providers, educators, and suppliers in analyzing the possible effects of policy changes on primary health-care employment. The model, Integrated Requirements for Physician Assistants, Nurse Practitioners, Certified Nurse Midwives, and Physicians (MDs and DOs), was developed for the department's Office of Research and Planning by Vector Research, Inc. of Ann Arbor, Michigan.

The model assumes a loose set of parameters for the future of primary health-care employment, but individual users may determine most variables to forecast employment to 2005 or 2020. In contrast, employment projections from the Bureau of Labor Statistics are based on an established set of assumptions.

To create custom models of future employment, users need knowledge of current employment patterns and insurance-coverage rates by type of insurance. However, the model comes with six preprogrammed scenarios, all of which can be modified slightly or completely, based on user preference. While the model's focus only on primary health care does leave out a large portion of total health-care professionals, it is a very useful starting point in understanding future change.

Here are the Six Prepared Scenarios:

Status Quo: Population growth is the only change assumed. Government and private spending are unchanged.

Baseline Insurance Projections: Assumes population growth and changes the rates of insurance coverage for the urban and rural populations. This is the most likely scenario, according to the Department of Health and Human Services. Government holds to the status quo, and the free market determines changes in coverage rates.

High Managed Care: Assumes an increasing percent of people will be enrolled in managed-care insurance programs. This may result from new laws requiring managed care for those covered by public insurance, or from increased participation in managed care by the privately insured population.

Universal Coverage: Similar to the High Managed Care scenario. This plan assumes a government mandate will make insurance coverage, particularly fee-for-service programs, available to everyone.

Equal Access Under Universal Care: Takes the Universal Coverage scenario a step further by assuming government will become more active in providing access to health-care services to underserved populations. This scenario represents significant government intervention in the health market, since establishing services in rural areas, for instance, is uneconomical for private providers.

High Physician Assistant, Nurse Practitioner, and Certified Nurse Midwife Use: Starting from the Baseline Insurance Projections and incorporating a broad range of possibilities for change, assumes a higher percent of patients attended only by these types of practitioners, rather than the traditional physician with some type of assistant. A wide variety of public and private policy changes might result in this scenario.

Forecasting to the year 2005, we find that each scenario means often dramatic changes in the number of primary health-care professionals employed in the U.S. Rates of growth are similar for the Status Quo, Baseline Insurance, and High Managed Care scenarios. For the purpose of contemplating the future, these three comprise one "thinking block," in that they have strong similarities. Universal Coverage and Equal Access Under Universal Coverage are another. They share employment growth projections, although the number of workers is expected to grow much faster than for the previous three scenarios.

The last scenario, High Nurse Practitioner/Physician Assistant/Nurse Practitioner Use represents the greatest potential change in employment, making it an outlier to the previous five. Yet current trends in the growing use of these non-physicians to provide basic services suggest this scenario is within the realm of the possible.

Under this scenario, employment for these three types of workers skyrockets, while the need for physicians declines. Growing demand would probably lead to higher salaries for these professionals, until new training programs created a greater supply of them. Medical schools would be faced with declining enrollment, for primary-care physicians would have a harder time finding employment, and would-be doctors would be drawn to other professions.

We also created our own scenario for the future of health-care employment. What if private insurance ended as we knew it? Sound impossible? So did the oil crises of the early 1970s and the long duration of World War I. Thinking about what seems impossible can prepare companies to survive in unstable environments and react quickly to an unexpected crisis. This last scenario is called No Private Insurance. It represents the end of private insurance coverage, with government accepting only limited growth in its own insurance programs. In other words, everyone who doesn't qualify for a government program would have to pay for health care out of their own pockets.

In the No Private Insurance scenario, there would be drastic declines in the need for physicians, physician assistants, and certified nurse midwives. The need for nurse practitioners would increase somewhat. The reason, again, would be market failure in the health-care economy. Since few people can pay for all the health care they require without help from insurance, fewer primary health-care professionals would be needed. If government failed to increase its insurance levels to cover more people, the employment situation would be bleak indeed.

If you want to skip the computer model in favor of a calculator, predicting the possible effect of reductions in government health-care spending can also be explored by studying expenditures. Since any change in government spending means shock waves throughout the industry, this is a valid approach. In 1994, the federal government paid for 33.7 percent of all personal health-care expenditures, or $280 billion. If even 1 percent came off this figure, the result would be a $2.8 billion reduction in personal health-care expenditures. That translates to 28,822 fewer jobs in the personal health-care market. On the other hand, a 1 percent increase would have the opposite effect--28,822 new health-care jobs would be created based on an additional $2.8 billion in spending.

Whether by computer model, calculator, or simply daydreaming about the future, working to understand how government policy may affect your health-care-related business is a solid strategy. The more you know, the better you will be able to react swiftly to swing change to your advantage.

Taking it Further For more information on government health-care financing, contact the Health Care Financing Administration, 7500 Security Boulevard, Baltimore, MD 21244; telephone (410) 786-3000, or visit its web page at http://www.hcfa.gov. For more information on the Integrated Requirements for PAs, NPs, CNMs and Physicians model, contact Edward S. Sekscenski, health economist at the Office of Research and Planning, Department of Health and Human Services, 5600 Fishers Lane, Room 8-55, Rockville, MD 20857; telephone (301) 443-6633.

Beyond the Health-Care Looking Glass (projected percent change in primary health-care employment for selected providers, by forecast scenario, 1995-2005)

[DATA TABLE, see print edition]

Note: PAs are physician assistants, NPs are nurse practitioners, and CNMs are certified nurse midwives.

Source: Department of Health and Human Services, Bureau of Health Professions' Integrated Requirements Model, and author's analysis

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