The Effect of Health Care Cost Growth on the U.S. Economy. Positive Effects

09/01/2007

Increased spending on health could stimulate job growth in certain sectors. Pauly (2003) argues that rising health care spending naturally results in rapid growth in the health care and related sectors, and in employment and incomes for workers in those sectors.  Anecdotal evidence supports this hypothesis. For example, a recent Business Week article reports that since 2001, 1.7 million new jobs have been added in the health care sector, which includes related industries such as pharmaceuticals and health insurance; in contrast, the number of private sector jobs outside of health care is no higher than it was five years ago. With expenditures of more than $2 trillion, health care supports local job markets in the northeast, midwest, and south – the regions hit hardest by globalization and the collapse of manufacturing.

Increased spending improves health and productivity. Murphy and Topel (2003) estimate that between 1970 and 2000, increased longevity added about $3.2 trillion per year to national wealth, an unaccounted value equal to about half of average annual GDP over the period. To the extent that some of these gains resulted from increased health care spending, it is possible that increased spending has dramatically increased the welfare of U.S. citizens.

Similarly, a RAND study found that, between 1970 and 1999, survival gains and reduction in number of work days missed due to health added $1.5 trillion to the value of the labor market human capital. It is likely that a significant proportion of these gains were due to increased capabilities of health care to improve health outcomes (Bhattacharya and Lakdawalla, 2006).

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