The Healthcare Economy

If you thought the job market was bad, despite Captain Codpiece's trumpeting of his job creation record, your perceptions were right. As part of the Republican systematic and deliberate eviscerating of the middle class, an economy has been created in which most of the new jobs are in health care:

Sure, housing has been a bonanza for homebuilders, real estate agents, and mortgage brokers. Together they have added more than 900,000 jobs since 2001. But the pressures of globalization and new technology have wreaked havoc on the rest of the labor market: Factories are still closing, retailers are shrinking, and the finance and insurance sector, outside of real estate lending and health insurers, has generated few additional jobs.

Perhaps most surprising, information technology, the great electronic promise of the 1990s, has turned into one of the biggest job-growth disappointments of all time. Despite the splashy success of companies such as Google (GOOG ) and Yahoo! (YHOO ), businesses at the core of the information economy -- software, semiconductors, telecom, and the whole gamut of Web companies -- have lost more than 1.1 million jobs in the past five years. Those businesses employ fewer Americans today than they did in 1998, when the Internet frenzy kicked into high gear.

ATTITUDE SHIFT
Meanwhile, hospitaL administrators like Steven Altschuler, president of Children's Hospital of Philadelphia, are on a hiring spree. Altschuler has added the equivalent of 4,000 new full-time jobs since he took over six years ago, almost doubling the hospital's workforce. To put this in perspective, all the nonhealth-care businesses in the Philadelphia area combined added virtually no jobs over the same stretch.

Altschuler plans to add 3,000 more employees over the next five years as the hospital, one of the nation's leading pediatric centers, spends $1.7 billion to expand. Next up is a new 1.2 million-square-foot research facility that will be packed with well-paid scientists and support staff. "Health care is the major engine for the economy of the city of Philadelphia," says Altschuler.

The City of Brotherly Love is hardly alone. Across the country, state and local politicians, desperate for growth, are crafting their economic development strategies around biotech and health care. California will pour $3 billion into stem cell research over the next 10 years, and other areas are on the same path. "Our downtown business leaders and politicians have traditionally considered health care as a cost center, not as an economic engine," says Baiju R. Shah, a former McKinsey & Co. consultant who runs Cleveland's BioEnterprise, a nonprofit founded four years ago to stimulate the local health-care and bioscience industries. "But people are waking up."

What they're waking up to is the true underpinnings of the much vaunted American job machine. The U.S. unemployment rate is 4.7%, compared with 8.2% and 8.9%, respectively, in Germany and France. But the health-care systems of those two countries added very few jobs from 1997 to 2004, according to new data from the Organization for Economic Cooperation & Development, while U.S. hospitals and physician offices never stopped growing. Take away health-care hiring in the U.S., and quicker than you can say cardiac bypass, the U.S. unemployment rate would be 1 to 2 percentage points higher.

Add in the people who have simply stopped looking for work and have exhausted their unemployment benefits, and the U.S. unemployment would probably be approaching 10%.

So why is this a problem?

The U.S. could eventually pay a big economic price for all these jobs. Ballooning government spending on health care is a major reason why Washington is running an enormous budget deficit, since federal outlays for health care totaled more than $600 billion in 2005, or roughly one quarter of the whole federal budget. Rising prices for medical care are making it harder for the average American to afford health insurance, leaving 47 million uninsured.

Moreover, as the high cost of health care lowers the competitiveness of U.S. corporations, it may accelerate the outflow of jobs in a self-reinforcing cycle. In fact, one explanation for the huge U.S. trade deficit is that the country is borrowing from overseas to fund creation of health-care jobs.

There's another enormous long-term problem: If current trends continue, 30% to 40% of all new jobs created over the next 25 years will be in health care. That sort of lopsided job creation is not the blueprint for a well-functioning economy.

The Business Week article cited above tries mightily to put lipstick on this particular pig. And of course the concern is how best to eviscerate the health care workforce once they get done funnelling everyone who's been laid off into that particular area:

The real question, then, is whether it is possible to restructure the health-care system to provide equally good care with fewer workers. The answer is yes, say some experts. "What we have consistently found is that the supply of physicians, except at the low end, has rather little influence on patient outcomes," says David Goodman, a professor at Dartmouth Medical School who started his career as a pediatrician in a rural county in Northern New Hampshire. Jonathan Weiner, a professor at Johns Hopkins University's Bloomberg School of Public Health, agrees: "I am absolutely certain that we can provide quality health care with fewer doctors."

Then the old "magic bullet" of IT is mentioned:

But both sides can agree that more spending on information technology could reduce the need for so many health-care workers. It's a truism in economics that investment boosts productivity, and the U.S. lags behind other countries in this area. One reason: "Every other country has the payers paying for IT," says Johns Hopkins' Gerard Anderson, an expert on the economics of health care. "In the U.S. we're asking the providers to pay for IT" -- and they're not the ones who benefit.

Breakthroughs in technology offer other enticing possibilities for making health care less labor-intensive over the long run. Hakon Hakonarson just moved from Iceland to start up the new Center for Applied Genomics at Children's Hospital of Philadelphia. Hakonarson's group is using cutting-edge automated technology to analyze hundreds of DNA samples from hospital patients and their parents per day, something that wasn't possible until recently. His aim is to collect enough data within a short period of time to understand the genetic causes of childhood diseases and determine which children will respond best to which drugs. "If we go at this pace," says Hakonarson, "we will have something very powerful to analyze before yearend." The eventual result could be better, cheaper treatments, with fewer expensive side effects.

And you think those IT jobs are going to be created in the U.S.? Keep dreaming. All of this data, all of the information systems designed to collect and analyze this data will be built in Bangalore. And when the system has spit out healthcare workers, where will Americans work then? Fast food restaurants? And what happens when Americans can't even afford the McDonald's hamburgers they sell?