Welcome!
2017-05-06 14:35:03
Health Act Repeal Threatens to Strike Economy’s Engine

From Akron to Youngstown and Canton to Cleveland, as in cities and towns across the country, workers who once walked out of factories at the end of each shift now stream out of hospitals.

While manufacturing employment has fallen nearly 40 percent in northeastern Ohio since 2000, the number of health care jobs in the region has jumped more than 30 percent over the same period. In Akron, the onetime rubber capital of the world, only one of the city’s 10 largest employers still makes tires. Three are hospitals.

“People who used to make deliveries to factories are now making them to hospitals,” said Samuel D. DeShazior, Akron’s deputy mayor for economic development.

Akron’s transformation is echoed in places as varied as Los Angeles, Birmingham, Ala., and Pittsburgh, along with rural areas like Iron County, Mo., where health care accounts for one-fifth of all employment.

The outsize economic role of the American health care industry heightens the risks posed by the Republicans’ effort in Washington to repeal the Affordable Care Act, enacted in 2010 under President Barack Obama, and it comes at a delicate moment for the broader economy.

While the government reported Friday that unemployment was at its lowest point in more than a decade, the health care industry has been an engine for much of that hiring, adding jobs at more than three times the rate of the rest of the economy since 2007.

Nor is the growth limited to hospitals. With help from the vast expansion of Medicaid enrollment that began three years ago, nursing homes, outpatient centers and medical labs have also grown, turning a fragmented industry into a strong political force.

Governors on both sides of the aisle, as well as many moderate Republicans on Capitol Hill, have expressed concern over whether the repeal will hurt local economies, especially in places where health care has softened the blow from struggling industries like retailing now or manufacturing in the past.

Moreover, in a recovery plagued by uneven growth and widening income inequality, the sector has been a reliable source of steady gains. Health care now equals almost one-fifth of gross domestic product, up from 13 percent in 2000, and it is poised to leapfrog retailing and leisure and hospitality as the second-largest source of overall employment, after professional and business services, accounting for one in eight private sector jobs.

The boom in health care did not begin with the Affordable Care Act. The industry was among the only parts of the economy to emerge relatively unscathed from the Great Recession, and it has flourished under Democratic and Republican presidents alike.

“Demographics and the expansion of Medicare and Medicaid in past decades contributed to the rise of health care’s share of the economy, and Obamacare extended that,” said Michael Gapen, chief United States economist at Barclays. Nevertheless, he warned that if the legislation approved by the House on Thursday were to become law, which is far from certain given skepticism of the bill in the Senate, it could undermine overall economic growth.

“It’s not trivial, and it’s much easier to constrain activity than to promote it,” Mr. Gapen said. “Reversing Obamacare is negative for the economy in the next year or two.”

The cost of providing coverage to millions more Americans has its own economic consequences.

Many employers, particularly small businesses, complain that they are straining under the demands imposed by the law. They argue that the A.C.A. stifles economic growth by forcing companies to pay heavy taxes and meet cumbersome regulatory burdens. Critics of the law, including many of the Republican backers of the proposed overhaul, say businesses and individuals are also being forced to pay for overly generous coverage.

Whatever the macroeconomic dangers, economists say the potential effects on individual consumers are just as worrisome. The House version of the repeal legislation does include significant tax cuts, which usually stimulate economic activity, but with most of the savings going to wealthier households, that bounty is likely to be saved, not spent.

At the same time, losing insurance coverage tends to constrain household spending while increasing financial insecurity among families, according to Matt Notowidigdo, a professor of economics at Northwestern.

A 2016 paper Mr. Notowidigdo worked on showed that an uninsured hospital stay doubles the risk of bankruptcy for individuals, while lowering credit scores and leaving consumers with an average of $6,000 in unpaid bills.

The proposed legislation poses more risks for some parts of the country than others, said Mark Duggan, a professor of economics at Stanford.

For example, about 9 percent of the population in Florida buys coverage through the new exchanges created under the Affordable Care Act, more than any other state. “If you lower the subsidies for coverage of 1.8 million Floridians, that will reduce what they can spend on other goods and services,” he said.

Mr. Duggan said states like Kentucky, Arkansas, New Mexico and West Virginia would be hard hit by the planned cuts in Medicaid, estimated at more than $880 billion over 10 years.

Another vulnerable slice of the population is workers who are a few years away from 65, when Medicare kicks in. “If there is a group that loses out the most, it’s near-seniors,” said Craig Garthwaite, director of the Healthcare Program at Northwestern’s Kellogg School of Management. “Their health care is so expensive, but the tax credit in the House bill caps out at $4,000.”

Mr. Garthwaite, who is a registered Republican and describes himself as a conservative economist, said there were few benefits for local economies in the bill, “and from an individual standpoint, it will be financially crippling for the poor.” Already, he added, “we’re seeing hospitals pause and adjust to the uncertainty by rethinking expansion plans.”

Hospitals in particular have been able to grow in recent years, with more of their patients now covered by either Medicaid or insurance purchased in the new exchanges.

At the same time, an aging population and expensive new treatments like drugs to treat hepatitis C and once-fatal forms of cancer have increased demand from consumers at many health care providers, even as they have strained budgets. Health care now accounts for nearly a fifth of overall consumer spending.

The potential loss of billions of dollars in federal money to states like New York, where large health systems like Northwell and Mount Sinai Health are among the biggest private employers, has helped turn state officials like Gov. Andrew M. Cuomo into vehement critics of the repeal efforts. The state estimated that the repeal could shift more than $2.4 billion in costs onto taxpayers and hospitals each year.

Economists on both the left and right say the Affordable Care Act needs substantial changes to ensure its long-term sustainability. They warn, however, that the current House legislation is so sweeping and its changes so abrupt that it carries economic risks of its own, especially given the size of the health care sector and how slowly other parts of the economy are growing.

Health care workers, too, have been watching the developments in Washington warily.

Oscar Onteveros, 37, began working as a nursing assistant at the Los Angeles County-University of Southern California Medical Center three years ago, after working for years in factories and in temporary jobs.

“I thought it would be more stable than working in labor and I would be able to move up,” he said. “I am worried about what happens next because nothing seems certain.”

In assessing the impact of the Republican House bill in an earlier form, the Congressional Budget Office estimated that 24 million people would lose insurance over the next decade as a result of cuts to the Medicaid program and the decline in people able to pay for individual coverage.

Potential changes to Medicaid are “going to put incredible pressure on the states, that will put incredible pressure” on what hospitals receive in payments, said Daniel Steingart, who follows the industry for Moody’s Investors Service. How states would react could vary significantly, he said, with some doing more to make up for the shortfall from the federal government.

Safety-net hospitals and academic medical centers that cater to low-income populations are likely to be hardest hit by any cuts, Mr. Steingart said.

The overall industry has benefited from the strong economy and the coverage expansions under Medicaid, he said. “People have jobs and they have insurance,” he said. About 20 million people gained coverage under the federal health care law. Hospitals have seen significant demand, and they “are hiring like crazy,” Mr. Steingart said.

Hospital executives said they faced tremendous uncertainty. Many, like Dr. Akram Boutros, the chief executive of the MetroHealth System in Cleveland, were talking with lawmakers to make the case against the bill’s abrupt cuts to Medicaid, hoping for some relief in the Senate. The Ohio Medicaid expansion has “been incredibly important to the health of the community,” he said.

Like other executives, Dr. Boutros argues that health system groups need to find ways of reducing the overall cost of care.

“The system as constituted today is underperforming and failing the American public,” he said. Hospitals could deliver better care for less money, he said, pointing to a program at MetroHealth that improved the health of people with hypertension and diabetes while saving $1,500 a patient a year.

Mr. Steingart agreed, arguing that with Washington fixated on the issue of coverage, the difficult debate over how to control costs has not yet taken place. “What’s been missing is what makes health care so expensive in this country,” he said. “We haven’t tackled that issue, and it’s a big one.”

The House health care bill faces an uphill battle in the Senate, which seemed likely to soften some large cuts outlined in the House version that were put in to make the legislation more palatable to conservative Republicans.

Still, the prospect of cuts of any size has challenged hospitals to try to provide lower-cost care while preparing themselves to absorb the loss of paying patients.

Many health systems say their expenses are climbing much faster than the payments from government programs like Medicare and Medicaid. This month, Advocate Health Care, one of the Chicago area’s largest employers, announced plans to cut expenses by $200 million. Advocate Health blamed the cost of providing care for which it was not reimbursed. “Our expenses must be adjusted to meet current and projected Medicare, Medicaid and commercial insurance payment rates,” Jim Skogsbergh, the chief executive, said in a memo to employees.

Atlantic Health System in Morristown, N.J., which benefited from the expansion of Medicaid and the falling number of people without insurance, faces the possibility of losing $65 million a year in revenue.

The system’s chief executive, Brian Gragnolati, talked to his staff on Thursday about the possible impact of the House bill. “What I worry about in our organization is how are we going to lean into the changes we need to make while we have this uncertainty hanging there,” he said.

But Mr. Gragnolati also worried about the health bill’s potential effects on patients, some of whom have gained access to care for the first time.

“What is going to happen here is when people don’t have access now to care, they will go back to the emergency departments for their primary care, waiting and waiting and waiting” to get a condition treated, Mr. Gragnolati said. “I just feel like we’re going back in time to a place where we were a decade ago. It’s an absolute shame.”