NCPA - National Center for Policy Analysis

Health Care Labor Sees No Productivity Gains

October 20, 2011

Health care, as it is designed and delivered today, is very labor-intensive.  Yet unlike virtually all other sectors of the U.S. economy, health care has experienced no gains over the past 20 years in labor productivity, defined as output per worker.  Even more striking is that despite the failure of health care workers to increase their real output value, health care wages overcame the recession, growing at an annual rate of 3.4 percent from 2005 to 2010.  Now, taking into account effects of the Affordable Care Act (ACA), growing demand for health care will exacerbate these disparities even further, say Robert Kocher and Nikhil R. Sahni in the New England Journal of Medicine.

  • Of the $2.6 trillion spent in 2010 on health care in the United States, 56 percent consisted of wages for health care workers.
  • The ACA will expand health insurance coverage to 34 million additional people over the next 10 years.
  • Allowing for assumptions regarding labor force growth and employment structure, total health care costs will increase by $112 billion in that same period.

In order to arrest growing labor costs within the health care sector, the labor structure will require reform.  While this may conflict with job creation goals, health care costs must be controlled in order to reduce the economic burden of ACA.  To this end, decision-makers will need to consider numerous policies that can augment labor productivity, thereby reducing wage costs within the sector.  Vertical delegation needs to be increased so that simple tasks can be performed by lower-skilled workers, freeing up highly-skilled workers to specialize in difficult jobs.  Record standardization should be encouraged to reduce unnecessary administrative costs and avoid rework.  Technological advancements should be further integrated in order to eliminate certain tasks altogether.

Such reforms, however, must hurdle extensive and expansive government regulations that limit changes in the health care sector.  If politicians at each level of government want to improve a crumbling heath care system, they will not only have to be proactive in establishing new policies -- they will also have to remove their own regulatory obstacles to maximize effectiveness.

Source: Robert Kocher and Nikhil R. Sahni, "Rethinking Health Care Labor," New England Journal of Medicine, October 13, 2011.

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