New England Journal of Medicine

Rethinking Health Care Labor

Of the $2.6 trillion spent in 2010 on health care in the United States, 56% consisted of wages for health care workers. Labor is by far the largest category of expense: health care, as it is designed and delivered today, is very labor-intensive. The 16.4 million U.S. health care employees represented 11.8% of the total employed labor force in 2010. Yet unlike virtually all other sectors of the U.S. economy, health care has experienced no gains over the past 20 years in labor productivity, defined as output per worker (in health care, the “output” is the volume of activity — including all encounters, tests, treatments, and surgeries — per unit of cost). Although it is possible that some gains in quality have been achieved that are not reflected in productivity gains, it’s striking that health care is not experiencing anything near the gains achieved in other sectors. At the same time, health care labor is becoming more expensive more quickly than other types of labor. Even through the recession, when wages fell in other sectors, health care wages grew at a compounded annual rate of 3.4% from 2005 to 2010.

Complicating this picture is the expansion of health insurance coverage to 34 million additional people over the next 10 years under the Affordable Care Act (ACA). This increase in the population of insured Americans will expand demand and the need for labor — potentially to the point where labor becomes scarce and therefore even more expensive. If we add these new beneficiaries to the health system and expand the workforce proportionally while retaining today’s labor structure, total health care costs will increase by $112 billion, or 13%. Therefore, to be successful, any effort to slow the rate of growth of health care spending will require a change to the labor structure.

Standing in the way, however, is the inherent conflict between the federal goals of slowing that rate of cost growth and creating jobs in the health care system. President Barack Obama recently announced that health care is a major area of job creation, and we’ve seen 12% job growth in health care over the past 5 years. A recent report by the McKinsey Global Institute notes that for the United States to return to full employment, as many as 22.5 million jobs would need to be created, with 5.2 million, or 23%, in the health care sector.2 Over the past decade, health care has been one of the primary drivers of job growth in the United States. Unfortunately, these jobs have been added in part because the health system has not improved its productivity at the same rates as other sectors.

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