THE BLOG
10/23/2014 04:31 pm ET Updated Dec 23, 2014

Low Health Bills Slow Economy

Teasing out the link between moderation in health spending and subpar economic growth is a daunting but important task that could have a big and unpredictable impact on the American economy in the years and decades ahead.

On the one hand, the growth in health spending, which has been gobbling up a growing share of our national budget has slowed, making care more affordable and relieving stress on government programs like Medicare. Some see that as good news reflecting greater efficiency, partly fed by the Obamacare reforms. Others see it as sad confirmation of economic malaise as people are deferring needed treatment because they can't afford it. We won't know for a while which hypothesis is more compelling.

But we do know that this trend is partly responsible for today's anemic American economic growth. The details are spelled out in a recent Health Affairs blog.

The big question is how things will play out if the current trend continues. On the one hand, that will be seen as good news to those who worry that such expenditures crowd out other public priorities and inhibit wage growth (because employers spend all added available for compensation increases on health insurance premiums).

On the other, it suggests that economic growth will be slower than anticipated. For those concerned about high unemployment numbers and the lack of new jobs at good wages, this could be worrisome. Quality job growth in recent years has depended on two sectors - health care and higher education. Not surprisingly, both are areas where consumers complain increasingly about access and affordability issues.

This trend has been particularly acute in the older cities on the East Coast. Nationally, health and education provide under 16% of non-farm jobs. But in Boston, Philadelphia and Pittsburgh, they are responsible for more than a fifth. These areas were responsible for half of the new jobs in the Philadelphia area in the past year and led growth in Boston.

A more efficient health system does augur well for these cities and more than a few others and may cause a revision in the way we plan our economic future. This is not a theoretical issue.

At the moment there are substantial pressures to up the amount Washington spends on medical education to increase the physician supply in anticipation of growing demand by an aging population. This would cost money in the short run - because the government pays for required hospital residency training - and feed large expenditures for decades because an increased physician supply will inevitably lead to a larger national medical bill, a growing percentage of which is picked up by government.

But making medicine more efficient may reduce such demand by shifting responsibilities to those with less training like physician assistants or nurse practitioners.

There's a broad belief that our government should act to maximize economic growth. Finding a strategy that does this while making healthcare more economical won't be easy. That process may be the prelude for a similar debate about higher education costs.
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