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Health Care: Great for the Economy Today, Terrible Later Health Care: Great for the Economy Today, Terrible Later

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HEALTH CARE

Health Care: Great for the Economy Today, Terrible Later

Hospitals like Pittsburgh’s UPMC created enough jobs to end the recession. If they keep it up, they’ll wreck the economy.

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What’s old is new: UPMC even took over the U.S. Steel building, the highest tower between Chicago and New York. (AP Photo/Keith Srakocic)

PITTSBURGH—Gerardo Sciulli was a welder from a small town in the Abruzzi region of Italy. So when he emigrated to America in 1970, he chose this place; its vibrant steel mills assured him plenty of work. He settled with his family in Oakland, a half-square-mile neighborhood east of downtown.

Today, the steel mills are gone, and Oakland is the seat of Pennsylvania’s health care industry. It contains a complex of interconnected hospitals, a medical school, doctors’ offices, and towers of University of Pittsburgh medical labs (which bring in some $450 million in federal grants every year). UPMC—the huge local health care provider, which is expected to pull in $10 billion in revenue this year—owns 16 hospitals in the metro area and is the largest private employer in the state.

 

All of which made a strong impression on Marc Sciulli, Gerardo’s 29-year-old son. By the time Marc started college, he knew he wanted a career in health care. Now, after his first few years as a hospital pharmacist, he earns nearly double what his father did (more than $80,000 a year), owns his own home, and plans to make his life in the city. “I think just living in Oakland—being around the hospitals and the colleges—pushed me in that direction,” he says.

Health care—which adds thousands of jobs in hospitals, nursing homes, and doctors’ offices each year—is at the center of this recovery. The sector pulls in federal Medicare dollars to serve the region’s aging population and research grants from the National Institutes of Health. It offers middle-class positions to nurses, technicians, accountants, computer programmers, and other professionals. UPMC may not replace the steel industry, but it has taken over the old U.S. Steel building downtown, and its logo looms large atop the city’s skyline.

Health care is the leading-edge of a nationwide trend. The number of jobs in this sector is climbing steadily, in contrast to the erosion in so many other areas of the economy. Since the Great Recession began in December 2007, health care jobs are up nationwide by 10.5 percent. Compare that with all other nonfarm jobs, which are still down 4.3 percent, even after recent gains. If the health care economy hadn’t grown during that period, the national unemployment rate would be 8.8 percent, a full point higher than it is, according to calculations by the Altarum Institute, which tracks the industry. If health care jobs had plunged like those in other sectors, U.S. unemployment would be a staggering 10.8 percent. Employees like Sciulli kept the country afloat. “In the short term, think of the health sector as being a stimulus program: It just keeps generating jobs and money,” says Charles Roehrig, director of Altarum’s Center for Sustainable Health Spending.

 

Infographic

But the long term may not be as rosy—for Pittsburgh or for the country. The growth in the health care sector also produces ever-growing costs. Health spending, nearly 18 percent of the U.S. economy, is contributing to personal bankruptcies, driving up the cost of domestic labor, and crowding out other government priorities (infrastructure, say, or education). That’s a problem in Pittsburgh, too, where the city has spent the last nine years in a form of municipal bankruptcy, after retiree pensions and employee health benefit costs crushed the budget.

It’s an example, in miniature, of what could happen nationally. Federal health entitlement programs alone are projected to balloon from less than 6 percent of gross domestic product today to more than 10 percent in 2037, according to the Congressional Budget Office, when they will exceed spending on all other government functions except Social Security. About half of that increase can be blamed on our aging population and the expanded benefits under the 2010 Affordable Care Act, but the other half represents what health economists call “excess cost growth”—the annual increases in spending for each person’s care. A health system this pricey won’t be able to keep adding good jobs like Sciulli’s without acting like ballast. “It’s a good thing for now, but as the economy begins to recover and we don’t need those health care jobs, we’re going to be desperate to reduce the growth rate in health spending,” Roehrig said. “Because we just can’t afford it.” The health care boom that is propping up the American economy, could eventually come back to haunt us.

THE FUEL

Through the mid-’70s, Pittsburgh had a vibrant economy. Steel mills in and around the city offered high salaries and plum benefits to workers right out of high school. Then international competition torpedoed steel prices, and the industry collapsed. Nearly all of the region’s mills closed within a five-year period. Unemployment rose to more than 18 percent, and union membership fell. “Growing up, I didn’t know anybody who didn’t work in the steel mill, and now I don’t know anybody” who does, says George Fechter, 66, an entrepreneur who invests in health care start-ups. Working-age people quickly left town. “In the early 1980s, they moved out using U-Hauls. Later on, they were moving out due to hearse.”

 

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