Employment in Health Services

decade, while both the private insurance share and the public
coverage grew.

® See David U. Himmelstein and Steffie Woolhander,
“Cost Without Benefit: Administrative Waste in U.S, Health
Care,” New England Journal of Medicine, vol. 314, no. 7,
1986, p. 444.

* Data for this industry are available beginning in 1982.

* Lazenby and Letsch, “National Health Expenditures,”
pp. 16-17. The portion paid directly by the patient is lower
than the 65 percent paid in 1980. The 1980 share paid by pri-
vate insurance was 31 percent.

+ Occupational employment statistics indicate that den-
tists maintained their share of employment, while dental hy-
gienists gained 2 percentage points and lower skilled dental
assistants lost 6 points.

>” The physicians group includes offices of psychoanalysts
and psychiatrists.

** March benchmark levels are published for these indus-
tries each year.

» Cynthia Wallace, “Cost shifting could skyrocket as Con-
gress chops health budget,” Modern Healthcare, August
1982, p. 60.

“ Law, Blue Cross, p. 46.

“' Cynthia Wallace, “Hospitals bear brunt of Medicare
‘budget cuts,” Modern Healthcare, September 1982, p. 18.

An exception is 1978. The employment growth rate in
health services was only 4.5 percent, compared with 5.1 per-
cent for the total nonfarm economy. During 1978 and 1979,
the hospital industry engaged in a voluntary effort to limit
health care cost increases in response to Hw Secretary Joseph

16 Monthly Labor Review November 1992

A. Califano, Jr.'s attempt to pass a cost containment bill. See
Califano, America’s Health Care Revolution, p. 123. The
years 1984 and 1985 were similar periods, during which em-
ployment growth was faster for the overall economy than for
health services.

© The figure for the most recent recession is through Janu-
ary 1992, the recent low point in total nonfarm employment.
‘The official endpoint of the recession has not yet been desig-
nated by the National Bureau of Economic Research.

For projections of employment growth, see Max L.
Carey and James C, Franklin, “Industry output and job
growth continues slow into next century,” Monthly Labor
Review, November 1991, pp. 45-63; and Anne Kahl and
Donald E. Clark, “Employment in health services: long-term
trends and projections,” Monthly Labor Review, August
1986, pp. 17-36.

“E.R. Brown, “‘Access to Health Insurance in the United
‘States,""Medical Care Review, Winter 1989, pp. 349-85.

Jack Hadley, “Conundrums,” Inguiry, Summer 1991, p.
195.

* Henry Aaron, Serious and unstable condition (Wash-
ington, The Brookings Institution, 1991) p. 33.

“ Lazenby and Letsch, “National Health Expenditures,”
pp. 14, 19.

© Organization for Economic Cooperation and Develop-
ment, “Health care expenditure and other data,” Health Care
Financing Review, Annual Supplement 1989, p. 172.

Aaron, Serious, p. 80.
5\ Carey and Franklin, “Industry output,” p. 55.


Chart 4. Employment in hospitals and in all health services, seasonally adjusted,
1980-92
Employment Employment,
10. o eens) ‘ 10.900
8,000 8,000
6,000 6,000
4,000 4,000
2,000 2,000
° °
1969 198, 1982 108g 1864 1985 198— 1887 186g 1889 1899 199; 1892
NOTE: Shaded areas are recessionary periods as designated by the National Bureau of Economic Research. Bare
Indicate medicare legislative milestones.

nual growth rate of 2.6 percent (excluding health __ ing 2.6 million jobs. But over the 1983-86 period,
services) was considerably less than the 4.1 per- growth averaged only 0.3 percent, and jobs actu-
cent posted by health services. ally were lost in 1984 and 1985. This period coin-
During the recession that began in July 1990, cided with the passage and implementation of
health services continued to outperform both the major medicare reform aimed at reducing pro-
total nonfarm and service-producing industry gram expenditures for hospital care. Previous high
groups in generating jobs. Between 1990 and __ rates of employment growth were re-established
1991, health services gained 350,000 jobs, while after 1986, as hospitals adapted to operations
total nonfarm industries lost 1.5 million positions under the new medicare payment system. The
and the service-producing sector (excluding growth rate of the population over age 65 was
health services) lost 690,000 jobs. Among the dif- steady during the decade.
ferent health services components, offices of doc- Medicare reform had a substantial impact on
tors, offices of other health practitioners, and hospital employment, due primarily to three fac-
hospitals had growth rate declines, while the re- tors. First, medicare is the leading purchaser of
verse was actually the case for health insurance, hospital services, providing 30 percent of hospital
nursing hospitals, medical and dental laboratories, revenue. In most areas, medicare claims are ad-
and home health care. ministered by Blue Cross or other major insurers
under contract to the U.S. Government." Changes
Hospitals. The various component activities of in administrative procedures for medicare cause
health services followed the industry’s growth _ changes in non-medicare procedures, both in hos-
path, with the exception of hospitals (sic 806). pital operations and in claims processing. Other
This is the largest component of health services, _ analysts have made the point that cost-conscious
comprising 44 percent of the industry’s 1991 em- __ practices, once established, are likely to be applied
ployment and accounting for more jobs than the _ to all of a health care facility’s customers, because
three next-largest components (nursing facilities, _ it is difficult for a practitioner to use different pric-
doctors’ offices, and dentists’ offices), combined. ing and accounting techniques depending on the
Employment in hospitals grew for most of the type of insurance card presented at the front
decade at annual rates of more than 3 percent, add- _desk.'° Second, the 1983 reforms were explicitly

Monthly Labor Review November 1992 7

wT


Employment in Health Services

Other health services groups. Medical and dental
laboratories (sic 807), for which data are available
as a separate series starting in 1982, enjoyed accel-
erating employment growth during most of the
1982-91 period. This group, comprising 2 percent
of health services employment, added 60,000
jobs, for a total gain of 57 percent. Its average an-
nual growth rate was 4.5 percent. The pace of job
increase was 1.9 percent in 1982, and gradually
Tose to 8.4 percent in 1988 and 1989 before falling
toa still robust rate of 4.9 percent in 1990.

The remaining groups in health services are of-
fices and clinics of doctors of osteopathy (sic 803)
and health and allied services, not elsewhere clas-
sified (sic 809). Monthly data are not published
separately for these groups because of their small
size. However, the employment growth pattern of
the miscellaneous group is similar to that of
medical and dental laboratories, while offices and
clinics of doctors of osteopathy enjoyed employ-
ment growth trends similar to that of health ser-
vices as a whole.*

Employment in health insurance

Central to the analysis of employment growth in
health services is consideration of financing and of
innovations in the organization of medical ser-
vices. This necessarily involves a look at the pri-
vate health insurance industry, which has ex-
perienced growth rates in employment and in
real wages similar to those in health services.
(See chart 5.) Employment change in the health
insurance industry is best understood when
viewed in relation to developments in the health
services industry.

In the 1980's, employment growth associated
with health-related insurance was stronger than
that of its parent group, insurance carriers, and
was affected by medicare reforms and private sec-
tor cost-containment efforts implemented in mid-
decade. Health insurance (sic 632) is small in
employment terms, with a total of 250,000 jobs.
The industry encompasses 17 percent of the em-
ployment of the insurance carriers group, and is
comparable in size to the home health care com-
ponent of health services. As can be seen in chart
5, the industry’s annual employment growth rate
of 1.5 percent between 1980 and 1982 was identi-
cal to that of all insurance carriers. Conditions for
both insurance groups improved as the 1981-82
recession ended, but the subsequent difference in
growth rates is striking. Over the 1983-91 period,
the average annual rate of employment increase
for health insurance was more than 3 times that for
all insurance providers combined, resulting in a
cumulative increase of 120,000 jobs. These gains
represented an 86-percent jobs gain for health in-
surance, compared with 22 percent for insurance

12 Monthly Labor Review November 1992

—-

carriers, Employment growth in health insurance
was similar to the rapid growth in doctors’ offices.
The growth rate of real wages in the health insur-
ance industry, at 6 times that of the total nonfarm
economy, was also comparable to that of health
services.

The 1983 medicare reforms may have affected
employment in health insurance more than that in
health services as a whole, for two reasons.” First,
when medicare moved to a system that would
sometimes pay less than the cost of care, private
insurers felt that they had to respond in tum. Spe-
cifically, they were concerned that, rather than ab-
sorbing the costs no longer reimbursed by medi-
care, hospitals would try to shift those costs to the
bills of privately insured patients. To minimize
this problem, insurers quickly added utilization
review and Diagnostic Related Group-based pay-
ment procedures to their own administrative sys-
tems, which boosted employment.

Second, many private sector health insurance
workers are involved in processing medicare
claims on behalf of the U.S. Government and med-
icaid payments for many States.” So, as medicare
adopted the new payment system, the industry
added staff to implement it, and funding was
added to medicare contractor budgets to facilitate
additional audits of medical claims." Expertise
developed to administer the medicare Prospective
Payment System could be applied to the adminis-
tration of non-medicare plans run by the same
company.

The 1980's were a period of great innovation
in the creation and marketing of new health in-
surance packages. The possibility of medicare
cost-shifting gave impetus to the marketing to
employers of new types of cost-controlling health
organizations: 1) Self-insurance, whereby em-
ployers fund their own plans and hire insurance
companies to administer them; 2) Independent
Practice Associations, which are created and mar-
keted by insurance companies that form indepen-
dently practicing physicians into an association
that promises to provide a stipulated range of ser-
vices for a fee fixed at the beginning of each year;
3) Preferred Provider Organizations, which are
like Independent Practice Associations, except
that care received from sources outside of the
sanctioned group of physicians is also covered
(but with a higher deductible); and so forth. In
addition, Health Maintenance Organizations
(HMo’s), which provide health care on a capitation
basis, with emphasis on preventive care, greatly
increased their membership. Although HMo’s have
existed in some form for many decades, the 1980’s
saw private insurers vigorously expanding their
efforts to create and market such plans. Innovation
continues in response to the persistent high cost of
health care and to the threat to the insurance in-



In 1980, employer-provided insurance paid 29.4
percent of national health care charges; by 1989,
the employers’ share had increased to 33.1 per-
cent. The public share of national health expendi-
tures essentially held stable at 42 percent over the
same period.”' Obviously, employers are well
aware of the need to offer high-quality health ben-
efits in competing for skilled workers.
Employment growth in hospitals was basically
flat during the 3-year implementation period for
the Prospective Payment System, but retumed to
earlier high rates of increase thereafter. The aver-
age annual growth rate for the 1987-91 period, 3.8
percent, was a percentage point lower than the
1980-82 rate of 4.9 percent, but far higher than the
0.3-percent annual change posted over 1983-86.
Employment peaked in September 1983 at 3.0 mil-
lion and then fell by 50,000 through July 1985.
These losses were recovered in just 13 months, and
hospitals subsequently continued to grow through
the end of the decade, adding another 750,000 jobs.
Over the 1980-91 period, hospitals created more
than a million jobs, an increase of 40 percent.
There is little evidence that jobs that otherwise
would have been added in hospitals were absorbed
by other health care institutions, The increase in
outpatient treatment related to the Prospective
Payment System bias and to improvements in an-
esthesiology is not discernable in the employment
estimates, because data for hospital inpatient and
outpatient services are not separated. The increase
in in-office procedures did not appear to affect
employment where it would be expected—in sic
801, offices and clinics of doctors of medicine.
This portion of the health care industry did not
show a faster growth rate when hospital jobs de-
clined, but instead maintained a steady rate of in-
crease throughout the 1980’s. The return to earlier
rates of employment growth following the 1983
changes to medicare suggests that hospitals re-
stricted hiring until the effects of the reforms were
better understood. And, the negative impact of the

Prospective Payment System on hospital profit-
ability was far less than expected.”

Nursing and personal care facilities. Nursing and
personal care facilities, sic 805, is the second larg-
est component of health services. The pattern of its
employment growth during the 1980's differed
markedly from that exhibited by hospitals. This
disparity in employment trends for the two types of
health care services reflects differences in their
patient mix and resulting sources of revenue.”

In contrast to the fluctuating growth of hospi-
tals, nursing facilities added jobs at a constant av-
erage annual rate of 3.9 percent throughout the
decade. This was twice the rate of increase in the
population aged 65 and older over the same pe-
riod, and slightly lower than health services’ over-
all rate of 4.3 percent. During the 1980-91 period,
nursing facilities gained 550,000 jobs, an increase
of over 55 percent.

As indicated above, the patient mix of nursing
facilities differs from that of hospitals. Patients in
nursing facilities need nursing and health care ona
long-term basis, while hospitals typically treat pa-
tients requiring short-term or immediate care. The
patient population of nursing facilities is domi-
nated by the infirm, aged, or retarded, and the bills
for these patients are handled differently from
those incurred by hospital patients.

Nursing facilities are paid for their services by
sources other than those that finance hospital ac-
tivities. Moreover, these sources were not affected
by the 1983 medicare reforms. Hospital bills are
paid by third parties, such as medicare, Blue
Cross, and for-profit private insurers; a tiny frac-
tion of hospital expenses are met by individuals. In
contrast, almost half (48 percent) of 1988 rev-
enues of nursing facilities came from individuals;
most of the other half (44 percent) came from
medicaid, the Federal-State program that pays
health care costs for some of the poor population;
private insurers paid for 1 percent of the cost of

[Numbers in thousands]

Table 2. Employment change during recessions, selected economic sectors, 1958-92

Total Service-

oath nonfarm producing

Recession dates economy industries

Number | Percent | Number | Percent | Number | Percent

April 1960-February 1961 ..... 67 43 ~1,188 ~28 7s)
December 1968-Noveber 1970 17 60 “355 941 20
November 1973-March 1975... M7 93 ~1,438 1,298 25
January 1980-July 1980... 442 28 114 312 ‘8
July 1981-November 1982 _ w4 56 2,796 45 A
July 1890-—January 1992"... 505 64 -1:978 ~492 6

* At the time this article went to press, January 1992 was the

endpoint of the recession that began in July 1990 had not yet been dasignatad by the National Bureau of Economic Research.

recent low point in total nonfarm employment, and the official

Monthly Labor Review November 1992 9

TT


Employment in Health Services

Table 1. Annual percentage change In employment, selected industries and economic
sectors, 1980-91
Total Service: insurance Health services
Year nonfarm producing Medical
‘economy industries. Total ineurence Total Hospitals

06 22 2.0 34 57 54

8 14 1.0 6 54 5.6

“17 a 0 -4 45 38

7 WwW ~7 19 3.0 7

48 43 9 63 22 Ad

32 44 42 11.0 29 -2

21 3.2 57 10.2 38 1.4

27 34 37 75 44 35

33 37 1.5 72 46 48

26 33 2 54 5.1 44

13 22 16 5.9 46 32

1.3 -4 24 60 44 3.0

designed to reduce the use of hospital inpatient
services, because authorities feared that the Medi-
care Hospital Insurance Trust Fund, which pays
for hospital inpatient services, would exhausted
by 1990, and perhaps even as early as 1987. And
third, the pressure to reduce costs that was built
into the new system was most directly relieved by
reducing hospital staff.

Signed into law as part of the 1983 Social Se-
curity Amendments, the medicare reforms'® con-
tinued the movement away from retrospective
payment for inpatient care begun under the Tax
Equity and Fiscal Responsibility Act (TeFRA) of
1982. From its inception in 1965, medicare had
paid hospitals and physicians retrospectively, with
reimbursement based on bills submitted after
treatment. The 1983 reforms broke completely
with this type of payment for hospital inpatient
treatment, replacing it with the Prospective Pay-
ment System. Meanwhile, charges for physician
and outpatient services continued to be reim-
bursed retrospectively.

The Prospective Payment System represented
a revolutionary change, because, for the first time
in medicare history, hospitals were rewarded for
minimizing costs. The system allows hospital ad-
ministrators to know in advance how much the
hospital will be reimbursed for a given combina-
tion of illness under treatment, overall health of
patient, and broad geographic area. The patient’s
medical problem is classified by the admitting
physician or by a specialized group of health pro-
fessionals into an appropriate Diagnostic Related
Group, which makes it easier to review hospital
performance on a large-scale basis. If the hospital
spends less than it is due under prospective pay-
ment, it makes a profit; if the hospital spends more
than it is due, it has to absorb the loss. Under pro-
spective payment, hospital net revenue is raised by
holding costs down, as well as by increasing the

8 Monthly Labor Review November 1992

+

number of patients treated; under retrospective
payment, net revenue was raised not only by treat-
ing more patients, but also by increasing the
charges per patient.

The possible bias of the Prospective Payment
System toward providing less treatment is de-
signed to be counterbalanced by a strong case re-
view system. Review is conducted by groups,
called Peer Review Organizations," authorized
and established at the same time as the Prospective
Payment System. These groups of health care pro-
fessionals review inpatient cases for the adequacy
and appropriateness of care administered. Because
of these developments, doctors may have become
more restrictive in their inpatient admission deci-
sions and more willing to use in-office and outpa-
tient settings, which are subject to neither peer
review nor prospective payment. While there is no
conclusive evidence that this is the case, inpatient
admissions and inpatient days declined, while the
incidence of outpatient treatment soared, follow-
ing the implementation of the Prospective Pay-
ment System.'* The adoption of prospective pay-
ment and peer review also appears to have slowed
job growth in hospitals.

Private sector insurance underwent a period of
reform that started at the same time as the medi-
care reforms, or shortly thereafter. But real reform
was hampered by employers’ need to provide gen-
erous health care benefits as an aid to recruit-
ment." During the 1980's, many private insurers
introduced utilization management systems simi-
Jar in intent to the medicare reforms aimed at re-
ducing inpatient days. However, the overwhelm-
ing portion of private insurance is purchased by
employers on behalf of their employees. Despite
employers’ efforts to curb outlays for health insur-
ance plans during the 1980’s, total benefits paid
for by the plans of medium-sized and large compa-
nies went up, even after adjustment for inflation.”



downturns. This would introduce some cyclical
movement to the employment trends of physi-
cians’ offices. But as it now stands, doctors face
aconstant demand for their essential services, de-
tived from consumers’ need for health, or at least,
for relief from illness.

For insured Americans, the constraint on the
demand for physicians’ services is not financial,
because most of the bill is paid by third parties.
In fact, the share of doctors’ bills paid directly
by consumers shrank dramatically during the
last decade, as public and private third-party
coverage picked up more of the costs, In 1980,
patients paid about 27 percent of the cost of phy-
sician care, private insurance paid 43 percent,
and public coverage paid 30 percent. By 1989,
the patient’s share had dropped to 19 percent,
with 48 percent paid by private insurers and 33
percent coming from public coverage.” The in-
creased burden on both government and private
programs arose despite efforts to control costs.
For instance, beginning in 1984, medicare fee
schedules for physicians were frozen for 2 years.
In reaction, physicians increased the volume of
services rendered under medicare.*' The em-
ployment trend for offices of medical doctors
was not significantly affected by these develop-
ments, although some support staff actually may
have been added to cope with the increase in ser-
vices provided to medicare beneficiaries.

Cost-containment efforts by the private sector?
also seem to have had little effect on employment
growth in doctors’ offices. Many apparent innova-
tions in insurance programs were actually a
repackaging or rebundling of traditional fee-for-
service physician care. In any case, the prolifera-
tion of different insurance plans added to the
paperwork burden faced by offices of doctors.
This may have absorbed any staffing savings that
might have been realized as offices became in-
creasingly computerized in the 1980’s.

Offices and clinics of dentists. Employment in
offices and clinics of dentists (sic 802) grew
throughout the 1980’s, although at lower rates
than those of physicians’ offices. This industry
segment is small, comprising 6 percent of health
services employment, or about a third as much as
doctors’ offices. Annual rates of employment
growth slowed from the 4- to 5-percent range over
the 1982-86 period to a range of 2 to 3 percent
from 1987 onward.TM Dentists’ offices gained
160,000 jobs between January 1982 and Decem-
ber 1991, for a total increase of 42 percent. In con-
trast, employment in doctors’ offices grew 64
percent over the same timespan. Compared with
doctors’ offices, dentists’ offices faced a less aus-
Picious market, and thus showed correspondingly
weaker employment growth.

Itappears that dentists’ services, although im-
portant, are perceived by consumers to be less
essential than services of physicians, and this is
reflected in the financing practices and utiliza-
tion of dental care. Fifty-five percent of dentists’
bills are paid directly by patients. Government
pays 2 percent, leaving 43 percent to be paid by
private insurers.*> High out-of-pocket payments
push consumers to cut back on expenditures for
dental care when budgets are tight. Furthermore,
fluoridation of drinking water has reduced the
number of cavities per patient. Therefore, work
of a discretionary, preventative nature (cleaning
and inspection) has begun to constitute an in-
creasing share of dental services. Much of this
work can be performed by lower-skilled workers,
such as dental hygienists and assistants. Such
workers may be more subject to layoffs than are
dentists.*° During the recession that started in
July 1990, employment in dentists’ offices con-
tinued to grow, but at an annual rate (2.6 percent)
about a percentage point below that posted over
the rest of the 1982-91 period.

Home health care. Employment data for home
health care services (sic 808) are available as a
separate series beginning in January 1988. This
relatively young industry segment now makes up
about 4 percent of health services employment,
and has had the highest annual percentage growth
rates (albeit from a small base) of any health ser-
vices component in recent years. It added 160,000
jobs between January 1988 and December 1991,
growing by 75 percent. Home health care is re-
ceiving increasing levels of public funding be-
cause it is perceived as being less expensive (in
broad terms) to deliver care at home than to treat
the patient in an institutional setting. Home care
also is frequently preferred by the patient, if he or
she is given a choice. Furthermore, increases in
demand for home-based care may reflect the
growing numbers of the elderly and of citizens
suffering from the later stages of aips-related
health problems.

Offices of other health practitioners. Another
small (4-percent share) industry segment of health
services is offices of other health practitioners
(sic 804). This group includes offices of care-
givers not included in the dentist or physician
groups, such as psychologists, chiropractors, op-
tometrists, and podiatrists, among others.>’ Em-
ployment in these establishments displayed very
rapid annual growth over the study period, rising
by 200,000—or 212 percent—between 1980 and
1991. This increase far outstrips the gain of 74 per-
cent posted by offices and clinics of medical doc-
tors over the same timespan.

Monthly Labor Review November 1992

11


David R. H. Hiles

David R. H. Hiles is an
economist in the Division
of Monthly Industry Em-
ployment Statistics, Bureau
of Labor Statistics.

Health services:

the real jobs machine

Interms of employment, the best performer
over the last decade was health services;

the industry added nearly 3 million jobs,
accounting for 1 of every 6 new jobs
in the economy since 1980

ore than 8 million U.S. workers have
M jobs in the health services industry,

which indicates the great economic im-
portance of the industry, in addition to the funda-
mental life-and-death nature of the services it de-
livers. Its employment growth rate has been
little affected by changes in the growth of the
overall economy, with the result that the indus-
try has become a primary source of new jobs
during economic downturns. (See chart 1.) The
industry’s share of total nonfarm jobs rose from
5.8 percent in 1980 to 7.6 percent in 1991, an in-
crease of 2.9 million jobs.' This increase was
widespread across the industry, and was fairly
evenly distributed among the major occupational
groups.

The independent growth trend of health care
employment is due largely to the fact that health
services faces supply and demand conditions far
different from those driving other industries. The
indispensable nature of its services, the steady
pressure of demographic change, and the means
by which health care is purchased, account for this
industry’s unusually strong employment growth.
The health care market is composed of a mix of
mostly private service providers who generally
are compensated by public or private third-party
organizations; this means that the customer rarely
pays directly for services rendered. Third-party
payment greatly reduces cost as a consideration
limiting the patient’s demand for health care,
while lessening pressure on suppliers to hold
prices of services down. And, while the health ser-

vices industry is considered a part of the private
sector, few industries are influenced by govern-
ment policy and funding to such an extent. For in-
stance, fundamental changes in medicare pay-
ments for hospital inpatient services significantly
reduced the relative growth rate of employment in
hospitals during the 1980’s, and may have sped up
the employment increase in the health insurance
industry.

In general, however, there were substantial
increases in health services jobs—accompanied
by greater-than-average growth in employee
compensation. Over the study period, real wage
gains in the industry were almost 6 times? those
posted for the total economy, despite the fact that
the distribution of employment by occupation
within health services remained fairly constant.’
Although there was some decline in the propor-
tion of hospital jobs held by typically tower-paid
service workers, and an increase in the share of
jobs that are professional, administrative, and
technical,‘ only a small part of the sharp increase
in average earnings can be attributed to the shift
in occupational mix. Mean wages in health ser-
vices also are relatively immune to the normal
forces of competition, and now are higher than
the average for the overall economy. Expanding
employment, rising wages, and other factors
helped push health care from 9.3 percent of gross
domestic product in 1980 to 13.0 percent in
1991,

This article provides a brief history of the mar-
ket for health services and focuses on the indus-

Monthly Labor Review November 1992 3

re a


Employment in Health Services

health, coupled with a source of financing little
affected by the business cycle, seems to translate
into uninterrupted employment growth at rates
well above that of the overall economy. As noted
before, available financing expanded, even in
real terms, during the 1980’s, as employers con-
tinued to widen the scope of their health plans.
For example, psychological treatment and drug
and alcohol rehabilitation are covered by many
more group plans today than was the case 10
years ago.

Not ail health care industry segments share the
same combination of financial structure, demand
characteristics, and job growth. For example, den-
tists’ offices and nursing facilities both are fi-
nanced directly by patients to a large degree.
Patients feel the bite of direct payment much more
than in the case of third-party payment, making
direct payment more likely to fluctuate with con-
sumers’ fortunes than payments by third-party in-
surers. The demand for dentistry has a larger
discretionary component than that for nursing fa-
cility use. Dental work often may be put off if
money is tight, whereas people who need to go toa
nursing facility usually go, regardless of financing
difficulties. Thus, employment growth rates of
dentists’ offices and nursing facilities differ, de-
spite similar sources of financing, because of the
difference in demand for the services offered. So, it
is understandable that nursing facilities show
steady job growth over the study period, while that
of dentists’ offices decelerates somewhat during
economic downtums, It is undeniable proof of the
nature of health care demand that even employ-
ment growth in dental offices slows only slightly
during recessions.

Prognosis for employment

Employment growth in health services is largely
determined by social decisions as to how much of
the Nation’s resources will be dedicated to health
care. There are several factors that may influence
industry employment trends in the 1990's.“

First, there are an increasing number of unin-
sured citizens.“ For those who have publicly or
privately funded insurance, the United States has
one of the world’s best health care systems; for
those without insurance, adequate access to health
care is increasingly difficult to obtain. Small com-
panies and self-employed persons are facing very
large increases in health care costs, partly because
insurance companies have been induced by com-
petitive pressures to cut rates for large group insur-
ance plans, and to make up the difference by
raising premiums for small companies and indi-
viduals.“ If small companies are forced to drop
health care plans to remain competitive’? and
government does not pick up coverage for their

14 Monthly Labor Review November 1992

workers, employment growth in health services
may slow; if government does pick up coverage,
health services employment growth may well ac-
celerate,

Second, normal market cost control mecha-
nisms exist to only a limited extent in the health
care arena. In most industries, market forces en-
sure cost efficiency. However, in the health care
market, the end customer—the patient—has not
had to be concerned with the full cost of the ser-
vices, although there are signs that this is chang-
ing. And, due to the socially sensitive nature of
health care, employers and government, which
also are buyers of health services, cannot pay as
much attention to price as they do when buying
other goods and services. Even the cost-con-
scious consumer cannot easily comparison-shop
for health services because information about
cost or quality is not readily available. The con-
sumers’ lack of information may continue to
complicate attempts to strengthen market forces
that would impose cost efficiency in health care,
which suggests that previous employment trends
will continue.

Third, the Nation’s health care system cur-
tently has a high staff-to-patient ratio, which
may be altered in the future. Although the private
sector nature of the U.S. system has been a
source of pride for many Americans, govern-
ment already pays 42 percent of all health ex-
penses and more than 50 percent of all hospital
costs. These expenditures are directed to a sys-
tem that has a hospital staff-to-patient ratio twice
that of the former West Germany and 3 times
that of Japan,” resulting in a U.S. system that
costs twice as much per capita as do those of the
other two countries. Because government is a
dominant participant in the U.S. health services
market, it has attempted to see that the industry is
efficient in the delivery of health care. However,
if the staff-to-patient ratio continues to increase
as it did in the 1980's, hospital employment will
continue to increase, along with employment in
other health services components.

Many other factors influence the health ser-
vices employment outlook. If the U.S. health care
system can be made more efficient while covering
the same patient base, the employment growth rate
in health services certainly will slow. In fact, if the
current system is maintained, the industry’s pro-
jected annual rate of job growth for the 1990-2005
period is expected to decline to 2.6 percent from
the 4.4-percent rate experienced during 1975-90.
This is largely due to the expected slowing of the
rate of population growth.*' However, the pro-
spective growth of the patient base is substantial,
reflecting factors ranging from the increased
health care needs of the graying baby-boomers, to
the stili-growing numbers of amps patients, to the


Chart 5. Monthly Indexes of employment in the insurance Industry, In health
Insurance, and In health services, 1980-92
Index index
1980=100) \
Mino con 8559
180 Zz
: . 180
160 4+ 160
140 * 4 140
120 f | 120
100 a 100
80 + 80
60 oe 4 60
40 4 40
20 . | 20
pe
° A A u Lu u 1 Lo 9
786q "8a, "82 "8eg "0aq "805 "86g "9ar "ag "ag "80g 189, "992
NOTE: Shaded
Hershey are loglalative mleeonad, periods as designated by the National Bureau of Economic Research. Bars

dustry posed by the various national health in-
surance plans currently under discussion.

Behavior during recessions

Employment in private health services has proved
to be largely immune to recessionary pressure, un-
like that of nearly all other industry groups. As in-
dicated earlier, health services has grown at a rapid
pace over the last two decades, usually at double or
triple the annual percentage employment growth
rate of total nonfarm industries.” Health services
employment grew by 2.8 percent during the 1980
recession, 5.6 percent over the 1981-82 recession,
and 6.4 percent since the most recent recession be-
gan in July 1990. In sharp contrast, total nonfarm
employment fell 1.2 percent, 3.1 percent, and 2.0
percent over the same periods.

Health services behaves differently during
recessions because, first, the service being de-
manded is not easily substitutable or deferrable,
and second, the industry’s output is largely pur-
chased with funds unavailable for the purchase of
other goods and services. American consumers
demand all kinds of goods and services. When
times are prosperous, they are able to more fully
satisfy their various wants. When budgets get
tight, they have to do without some objects of their

desire, at least temporarily. But living without sat-
isfactory health, even temporarily, is a more diffi-
cult proposition. Demand for health services
cannot be appreciably restricted during fluctua-
tions of the business cycle because of the constant
demand for a basic standard of health. It is pos-
sible that demand for health services might in-
crease under the emotional stress created by an
economic downturn. This would be even more
contrary to the economic laws governing ordinary
consumer demand, which withers during a down-
tum and revives during recoveries.

Unlike the demand for other goods and ser-
vices, demand for health services is more or less
facilitated by a steady supply of financing. In
hard times, health insurance represents a dedi-
cated pool of money that cannot be used to buy
other goods. Of course, insurance is often tied to
employment, but provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1986
permit laid-off workers to stay in their former
employer’s group health plan for several months
by picking up the employer’s share of the premi-
ums. Some laid-off workers, however, cannot
afford to pick up their option, and many employ-
ees of small firms are not covered by health in-
surance at all. But for the most part, steady
demand for enough care to maintain good

Monthly Labor Review November 1992

13



Employment in Health Services

nursing facilities.* In 1990, 70 percent of all med-
icaid payments went to cover treatment of the
blind, the disabled, or beneficiaries over age 65,
although these groups made up only 28 percent of
medicaid enrollees.”* Thirty-nine percent of 1990
medicaid benefits were paid to skilled nursing and
intermediate care facilities, which make up the
bulk of the nursing and personal care facilities
group.* Because medicare thus is not a major
player in the-market for nursing home care, it is
understandable that the prospective payment-peer
review reforms had no discernable impact on em-
ployment trends. Some observers have noted that
pressures on hospitals to limit inpatient stays, cre~
ated by the reforms, led hospitals to release pa-
tients to nursing facilities or home health care
earlier than would otherwise have been the case.”
However, nursing facilities apparently were able
to cope with the additional patient load without in-
creasing their rate of hiring. The short-lived 1988
Medicare Catastrophic Coverage Act (repealed 1
year after passage), which greatly expanded the
scope of medicare coverage for care provided in
skilled nursing facilities, also did not seem to af-
fect the rate of employment growth.

Offices and clinics of medical doctors. Offices and
clinics of medical doctors (sic 801), the largest of
the professional groups in health services, experi-
enced a steady annual employment increase of

more than 5 percent throughout the 1980's,”
Changes in medicare regulations and other cost-
containment efforts did not seem to slow employ-
ment growth, and actually may have kept the rate
of job increase higher than it otherwise would have
been. The system of payment that applies to doc-
tors, along with the nature of their services, al-
lowed their offices to thrive.

Employment in this industry segment grew by
600,000, or 80 percent, between 1980 and 1991.
Persons in occupations included in this group face
different labor supply and demand conditions. For
example, increases in the employment of physi-
cians are limited by medical school enrollment
policies. Conversely, the support staff of physi-
cians’ offices face no such restrictions, and their
job growth is in part driven by service-based com-
petition.

Joseph A. Califano, Jr., former Secretary of
Health, Education and Welfare, has maintained
that the U.S. health care system. is really a “sick
care system.””? Doctors are at the center of this
system, and people typically go to them only
when they are sick. Because the incidence of ill-
ness is unlikely to vary with the business cycle,
the demand for physicians’ services is fairly
stable, other things being equal. If the U.S. sys-
tem had a large health maintenance component,
people could defer some nonessential preventive
and health maintenance visits during economic

Table 3. | Employment change for selected sectors and industries, 1980-91
[Numbers in thousands]
Standard Share of
Industrial health
oan Industry Level Change sonilecs
cation (in percent)
1980 1991 Number | Percent | 1980 | 199
Total nonfarm. ...] 9,406.0 | 108,310.0 17,904.0 19.8 iv) ")
‘Service-producing . | 64,748.0 84,480.0 19,732.0 30.5 () )
63 | insurance cecef 12241 1,494.5, 270.4 22.4 iv) ()
632 j Health insurance... 141.9 256.5 1146 20.8 “) ()
80 } Health services ......] 5,278.0 8,177.3 2,899.3 34.9 100.0 100.0
801 | Offices of doctors
of medicine . . 801.7 1,397.8 596.1 74.4 182 174
802 | Offices of dentists...) 344.3 527.4 183.1 53.2 65 64
804 | Offices of other
health practitioners 96.4 300.8 204.4 212.0 18 3.7
805 | Nursing and personal
care facilities . 996.6 1,498.8 502.2 50.4 18.9 18.3
206 | Hospitals... »- | 2.7502 3,656.7 906.5 33.0 52.1 447
807 | Medical and dental
laboratories 104.7 172.3 67.6 64.6 2.0 24
803,8,9 | Other health and
allied services?. .. 104.1 623.5 439.4 238.7 35 76
' Not applicable.
? Includes home health care services, a rapidly growing new industry for which data were first published in 1988. This segment
grew at an average annual rate of 17 percent during the 1988-91 period.

10 Monthly Labor Review November 1992

oT



Employment in Health Services

ments made up a greater share of total health care
expenditures at the same time that total constant-
dollar expenditures were growing.” Despite in-
creased deductibles and copayments imposed by
many plans, the proportion paid directly by pa-
tients declined. Attempts by employers to achieve
insurance cost savings by offering employees mul-
tiple plans often had the unintended effect of
fostering expensive, service-based competition,
rather than the hoped-for, price-based competi-
tion."? And despite cost containment efforts, real
average wages in health services grew faster than
those of workers in the overall economy during the
1980-91 period—to such an extent, in fact, that
they now are higher than average overall wages.

Employment trends in health industries

The effect of steady sources of funding of health
care services are clearly reflected in the indus-
try’s employment and wage trends. When pay-
ment sources are augmented or restricted, the
employment trend changes. (See chart 3.) Dur-
ing the last two decades, the health services in-
dustry has enjoyed annual employment growth
rates almost 3 percentage points higher than
those experienced by the total nonfarm econ-

omy. This strong growth was interrupted only
briefly, when job growth in health services
slowed in the mid-1980’s. This development
was due largely to the response of hospitals to a
major medicare reform known as the Prospec-
tive Payment System ps). Nevertheless, steady
growth in the other large health services compo-
nents, coupled with rapid growth in smaller com-
ponents, kept the industry’s employment growth
tates well above that of the overall economy dur-
ing the decade and through the most recent re-
cession. (See chart 4 and table 1.)

The employment growth rate for health ser-
vices during the 1980-89 period was more than
twice that of total nonfarm industry and 1.5 times
that of the vibrant service-producing sector (ex-
cluding health services). It was also more than
double the steady growth rate of the population
aged 65 and over, indicating that factors in addi-
tion to the aging of the population helped fuel the
rapid growth. As a result of differences in growth
rates, health services increased its share of total
nonfarm employment from 5.8 percent in 1980 to
6.9 percent by 1989. Health services even in-
creased employment during the recessions of the
early 1980's, (See table 2.) The service-producing
sector as a whole also showed employment gains
in every year during the 1980’s, although its an-

Chart 3. Annual average employment In health services, 1958-91

nt Employment
(n thoveande) {in thousands)
10,000 10,000
8,000 + 7 8.000
6,000 + = 6,000
4,000 }- + 4,000
2,000 - 4 2,000
° 1 1 L L 1 1 °
1962 1967 1972 1977 1982 1987
NOTE: Bars indicate medicare legislative miestones.
- a

Monthly Labor Review November 1992


Chart 2. Percentage share of total health services employment accounted
for by component activities, 1980 and 1991

Bw WAS

VQ &

100" Peroent
so fF + 90
sor = 1980 7 8
70 F @ 1991 4 70
60 + J+ 0
50 fF + 60
40 + 4 40
so fF 4 30
20 + 4 20
10 10
° °

call for a system of national health insurance in
his 1948 State of the Union address.”

While the prevalence of employer-based cov-
erage increased dramatically, the cost of coverage
began to vary. The Blue Cross system of offering
the entire community the same premium was
gradually superseded by experience-rated premi-
ums available from private insurers. These rates
enabled large groups (such as employers) to save
on premium costs by spreading risk over large
numbers of workers. In contrast, the elderly and
poor increasingly had problems paying risk-
based premiums and, as a result, began dropping
out of the system.'? The U.S. Congress and the
Administration of President Lyndon B. Johnson
responded in 1965 by enacting the medicare and
medicaid programs, which provide health insur-
ance for the aged and poor.

The 1980’s were characterized by a new ur-
gency to slow the growth of health care expendi-
tures. This pressure to cut costs led to innovations
in health care delivery systems and fundamental
changes in payment practices. Rising health care
costs had been a concern for years, but, in April
1982, the trustees of the Medicare Hospital Insur-
ance Trust Fund projected that the fund would be
exhausted by the end of the decade." President
Ronald W. Reagan and the Congress responded

by enacting major changes in the Medicare Hospi-
tal Insurance program in 1983. These changes
forced private insurers to take action lest costs be
shifted to them from medicare. Hospitals also
moved to avoid losses anticipated from the adop-
tion of the new system.

The attempts at cost containment during the
1980’s had mixed results. While major employers
had success in negotiating discounts in the cost of
health insurance coverage, small businesses faced
higher costs because they lacked bargaining clout
with insurance companies. Hospital inpatient
costs were the target of medicare reforms, with the
result that many medical procedures were trans-
ferred to less regulated outpatient and office loca-
tions, where third-party cost reimbursement con-
tinued without the limits and oversight applied to
inpatient procedures. During the same period,
many private insurers also attempted to tackle the
problem of escalating hospital costs. Motivated at
least in part by the implementation of the medicare
reforms, they too adopted cost-containment meas-
ures similar to the medicare procedures described
in this article. These initiatives by private insurers
are discussed in more detail by Robert B. Grant,
elsewhere in this issue.

Health insurance coverage in real terms actu-
ally increased over the decade, as third-party pay-

Monthly Labor Review November 1992 5



Employment in Health Services

try’s employment trends since 1980. Hospitals is
the largest group within health services, making up
45 percent of total employment. (See chart 2.)
Other sizable industry components are nursing and
personal care facilities, with 18 percent of health
services employment, and offices of doctors of
medicine, with 17 percent. Employment trends of
the related industry group, health insurance, also
are discussed. In addition, future prospects for the
health services industry are reviewed.

Growth of third-party payment

America’s modern health services industry, char-
acterized by private sector health care providers
paid by third parties, saw its first period of signifi-
cant growth during World War II. The story of the
health services industry is inextricably tied to the
development of the health insurance industry.
Prior to World War II, the market for health
services was similar to others in that the cus-
tomer paid the provider directly for services.
Although charity care and the practice of infor-
mal variation of fees to accommodate patients of
different incomes existed, the prewar era lacked
the financial intermediaries that mark the mod-
em period. The health insurance industry traces
its beginnings back to Dallas in 1929, when

Baylor Hospital offered prepaid hospital care
coverage to 1,200 teachers.* This was the be-
ginning of Blue Cross. Blue Shield insurance
(covering physicians’ services) was created by
California physicians in 1939, in response to a
proposed State health insurance plan.°

During World War II, wage control policies
encouraged the growth of fringe benefits, includ-
ing health insurance, as substitutes for wage in-
creases. By law, fringe benefits were limited to 5
percent of payrolls. Even so, many employers
took advantage of this competitive tool to attract
and retain workers in that time of labor scarcity.
The Blue Cross system made significant gains
during the war, offering coverage based on the av-
erage cost of care in individual communities. In
1936, there had been 17 Blue Cross plans nation-
wide; in 1939, there were 48, and by 1943, there
were 74 plans.”

After World War II, health insurance benefits
spread throughout the economy, partly as the re-
sult of political action. In its 1949 Inland Steel
decision, the U.S. Supreme Court ruled that cer-
tain fringe benefits, including health care, belong
on the list of issues subject to collective bargain-
ing.* Subsequent industrial contracts extended
insurance coverage throughout the country, per-
haps speeded by President Harry S Truman’s

~
Chart 1. Employment indexes for health services and for the total nonfarm economy,
1968-91
index Index
(19682100) (1958=100)
700 700
600 + 4 600
600 }- -| 500
400 Health services 4+ 400
$300 + + 300
Total nonfarm
economy
L |
200 _ 200
October t83: Octeder 1906:
ee ay at a
ay s008: Fad fantom
‘Me@oare begins Implementation
° 1 ‘ ! 1 n ! °
1962 1967 1972 1977 1982 1987
NOTE: Bare indicate medicare legialative milestones.
—_

4 Monthly Labor Review November 1992



currently unmet needs of persons without the
means to purchase health care.

In short, future changes in employment
growth in health services and related industries
may well depend on society’s decisions regard-
ing the allocation and funding of health care. At
this juncture, it is impossible to predict what ap-

Footnotes

proaches to cost control will be adopted. Unlike
the case for most private sector industries, the
questions facing health services for the rest of
the 1990’s are: Can (and should) this jobs ma-
chine be controlled, and should the industry be
allowed to continue to add, on average, 30,000
jobs to national payrolls each month? QO

Employment data cited in this article are taken from the
Current Employment Statistics survey and appear in Em-
ployment, Hours, and Earnings, United States, 1909-90,
vols. I and H, Bulletin 2370 (Bureau of Labor Statistics,
March 1991); and the Supplement to Employment and Earn-
ings (Bureau of Labor Statistics, August 1992). This article
uuses annual averages for year-to-year comparisons. The num-
ber of health services component segments for which data are
published increased during the 1980's.

? Based on ats Employment and Wages (es-202) employ-
ment and total wage data for 1980 and 1991. Wages were
deflated using the 1982-84 Consumer Price Index for Urban.
Wage Eamers and Clerical Workers (cP-w) ES-202 data are
for all employees, including both part-time and full-time
workers. However, if Current Employment Statistics survey
data on average hourly earnings of nonsupervisory workers
are used, the same basic conclusions result.

> Based on sis Occupational Employment Statistics esti-
mates for 1981 and 1990 for health services except hospitals,
and for the years 1980 and 1989 for hospitals.

“Kay Anderson and Barbara Wooton, “Changes in hospi-
tal staffing pattems,” Monthly Labor Review, March 1991,
pp. 4-5.

+ Alan L. Sorkin, Health Economics (Lexington, a, D.C.
Heath and Co., 1975), p. 169.

* Rashi Fein, Medical Care, Medical Costs (Cambridge,
Ma, Harvard University Press, 1986), pp. 27-28.

7 Fein, Medical Care, pp. 16-17, 21-22.

* Joseph A. Califano, Jr., America’s Health Care Revolu-
tion (New York, Random House, 1986), pp. 44-45.

° Sorkin, Health Economics, p. 14.

.” Fein, Medical Care, pp. 52-53.

TM Donald T. Regan, Raymond J. Donovan, Richard S.
Schweiker, and Carolyne K. Davis, 1982 Annual Report of
the Board of Trustees of the Federal Hospital Insurance
Trust Fund (Washington, U.S. Government Printing Office,
1982), p. 42.

* Gail A. Jensen, Michael A. Morrisey, and John W.
Marcus, “Cost Sharing and the Changing Pattern of Em-
ployer-sponsored Health Benefits,” Millbank Quarterly, vol.
65, no. 4, 1987, p. 523. This article used 1981-84 data from
the BLs Employee Benefits Survey (ess), but it focused on as-
pects of coverage not previously reported by the bts, using
estimates generated independently from EBs data.

” Alain C, Enthoven, “Multiple Choice Health Insurance:
The Lesson and Challenge to Employers,” Inquiry, Winter
1990, p. 369.

Sylvia A. Law, Blue Cross: What Went Wrong? (Bing-
hamton, ny, Yale University Press, 1974), p. 41.

'S Frank A, Sloan, Michael A, Morrisey, and Joseph Val-
vona, “Effects of the Medicare Prospective Payment Sys-
tem on Hospital Cost Containment: An Early Appraisal,”
Millbank Quarterly, vol. 66, no. 2, 1988, p. 193.

1° The section on details of the 1983 medicare reforms de-
pends heavily on Louise B. Russell, Medicare’s new hospital

‘payment system: ls it working? (Washington, The Brookings
Institution, 1989).

1” Independent Peer Review Organizations (pro's) are
generally led by doctors and staffed largely by nurses. These
groups are classified not in health insurance or health ser-
vices, but in Professional Membership Organizations, sic
8621. pro’s have undoubtedly experienced employment in-
creases in the 1980's.

See Russell, Medicare's new hospital payment system,
p.45,

°8 Jensen and others, “Cost Sharing,” p. 543.
® poid., p. 523.
TM Helen C., Lazenby and Suzanne W. Letsch, “National

Health Expenditures, 1989,” Health Care Financing Review,
Winter 1990, pp. 16-17.

2 Russell, Medicare’ s new hospital payment system, p. 78.

® Nursing and personal care facilities (sic group 805) in-
cludes establishments that are primarily engaged in providing
inpatient nursing and health-related personal care. It does not
include establishments that are primarily engaged in provid-
ing day-to-day personal care without supervision of the deliv-
ery of health services prescribed by a physician. Such
establishments are classified in social services group 8361,
residential care. For simplicity, the entire sic 805 is called
“nursing facilities” in this presentation.

2 Lazenby and Letsch, “National Health Expenditures,” p.
21, Although 1989 data were published in this article, 1988
data were used here to avoid basing analysis on the atypical
year 1989, during which the short-lived Medicare Cata-
strophic Coverage Act increased the size of the Federal pay-
ment directed toward nursing facilities.

2 Mary O. Waid, Medicaid: A Brief Summary of Title XIX
of the Social Security Act (Baltimore, Mp, Health Care Fi-
nancing Administration, February 1992), p. 5.

2 Anthony Parker, A Statistical Report on Medicaid:
Medical Care Provided by Title XIX of the Social Security
Act As Reported by the States and Territories to the Health
Care Financing Administration on the HCFA 2082 Form for
the 1990 State Medicaid Programs (Baltimore, wv, Health
Care Financing Administration, October 1991), table 11.

7! William G. Weissert, “A New Policy Agenda for Home
Care,” Health Affairs, Summer 1991, p. 71.

2 Employment data in this article are from the BLs survey
of establishment payrolls. The data thus include only the
staffs of self-employed health practitioners, not the health
care practitioners themselves.

% Califano, America’s Health Care Revolution, p. 9.

* Lazenby and Letsch, “National Health Expenditures,” p.
20.

3 Sandra Christensen, “Did 1980°s Legislation Slow Med-
icare Spending?” Health Affairs, Summer 1991, p. 141.

® As noted above, despite insurance plan innovations, the
portion of bills paid directly by the patient shrank during the

Monthly Labor Review November 1992

15