Health Care & Prescription Drugs News

Putting America Back to Work

A State-by-State Analysis of Health Reform's Impact

on Short-term Job Creation and Long-Term Economic Growth

by Larry McNeely

U.S. Public Interest Research Group

 

Discussion and Analysis

 

As the national health reform debate begins in earnest, some pundits have suggested that America cannot afford to invest in health reform. The resounding response from political and thought leaders has been that America can't afford not to. 

 

The current, unsustainable rise in health care costs imposes economic burdens on families, businesses, and state budgets – burdens that will soon become completely unbearable. U.S. PIRG's January 2009 report, Health Care in Crisis, predicts that without health reform family insurance policies will cost, on average, $24,691 a year in 2016.[i] These findings are consistent with similar reports from AARP,[ii] the Urban Institute,[iii] and the New America Foundation,[iv] among others.

 

Yet when considering landmark legislation, the American people and their representatives in Congress ought to hear more. They ought to hear how legislation could benefit them, and, especially in these times of economic distress, they need to understand how it will affect their economic future.

The White House Council of Economic Advisor’s recent report, The Economic Case for Health Reform offers the beginning of an answer. This report concluded that a reduction in the growth of health spending of 1.5 percentage points could allow a .24% drop in unemployment consistent with no inflation for each year it occurred.[v] A .25 drop in national unemployment means 500,000 jobs a year.[vi] The report also concluded that a less costly, more efficient health system will allow our economy, to grow more rapidly, yielding an 8% increase in the Gross Domestic Product (GDP) by 2030.[vii]

 

National economic reports, however, mean little to Americans who are worried about their job or small business or concerned about whether their kids will ever have a chance at a decent job. U.S. PIRG's analysis, presented below, should help address those worries directly. In the chart below, we adapt the Council of Economic Advisors findings to estimate the state by state impact that health reform could have on job creation over five years and longer term economic activity for every state in the nation, and the District of Columbia.

 

 

  

 

States	Job Creation Potential without Inflation	Projected Increase in 2030 Gross State Product
Alabama	28,725	20,012,475
Alaska	5,885	5,373,443
Arizona	27,735	29,817,617
Arkansas	15,280	11,511,796
California	205,715	218,835,053
Colorado	30,990	28,525,586
Connecticut	27,545	26,104,477
Delaware	6,900	7,256,568
District of Columbia	5,900	11,324,461
Florida	113,660	88,660,420
Georgia	49,585	47,860,179
Hawaii	8,520	7,427,246
Idaho	7,965	6,173,961
Illinois	8,670	73,578,399
Indiana	42,905	29,746,521
Iowa	21,020	15,574,137
Kansas	20,005	14,159,349
Kentucky	27,715	18,610,844
Louisiana	24,445	26,089,992
Maine	10,095	5,806,896
Maryland	40,685	32,431,734
Massachusetts	52,330	42,429,643
Michigan	63,430	46,105,002
Minnesota	38,810	30,776,259
Mississippi	15,500	10,687,982
Missouri	37,375	27,698,271
Montana	6,325	4,134,523
Nebraska	13,085	9,667,659
Nevada	14,830	15,355,298
New Hampshire	9,440	6,921,369
New Jersey	63,625	56,186,439
New Mexico	9,785	9,195,097
New York	123,245	133,140,968
North Carolina	54,145	48,215,295
North Dakota	5,055	3,346,558
Ohio	81,495	56,286,021
Oklahoma	21,255	16,817,040
Oregon	23,190	19,098,373
Pennsylvania	87,150	64,107,852
Rhode Island	7,775	5,661,084
South Carolina	26,190	18,447,408
South Dakota	5,570	4,096,018
Tennessee	37,825	29,436,309
Texas	132,245	137,841,358
Utah	13,635	12,753,493
Vermont	4,750	2,962,473
Virginia	50,940	46,225,828
Washington	42,400	37,571,974
West Virginia	10,120	6,966,030
Wisconsin	42,670	28,039,023
Wyoming	3,650	3,803,910

 

 

Sources and Methodology

 

Economic Impact

The Council of Economic Advisors estimates that a 1.5% yearly reduction in health spending could yield a national GDP number 8% larger than otherwise projected in the year 2030.

 

In a 2003 study, Goldman Sachs estimated that the 2030 U.S. Gross Domestic Product would be $20.8 trillion.[viii] Thus, the 8% increase projected by CEA results in a 2030 GDP that is $1.66 trillion higher. We allocate the $20.8 trillion between the states proportionate to their 2007 share of total GDP, as provided by the Bureau of Economic Analysis. This yields a projected 2030 GDP for each state. The economic benefit of health reform listed in the chart above is equal to 8 % of that projected state GDP.

 

Jobs Impact:

CEA estimates that health reform will allow a .24 drop in the unemployment rate nationally per year without inflationary impact each year.  They state that a .25% of the labor force is approximately equal to 500,000 jobs.[ix]

 

The primary engine behind this potential drop in the unemployment rate is the reduced cost of employees to businesses.  Thus, we allocate the 500,000 jobs to the states according to their share of national non-public health expenditures, a close proxy for actual health expenditures by businesses. 

 

Using Center for Medicaid and Medicare Services data for personal health expenditures by state from 2004[x], we subtract Medicare and Medicaid expenditures from total personal health expenditures for the nation as a whole and each state.  This operation yields a number for non-CMS personal health expenditures nationally and state by state.

 

We then multiply each state's percentage of the national non CMS personal health expenditures by 500,000 to arrive at an estimated yearly potential impact on each state.  We then multiply that number by five to arrive at a number for jobs that could be added without inflationary impact over the next five years.

 

Limitations of our Study:

In reaching our estimates, we assume that each state achieves the cumulative 1.5% cost reduction called for by the Obama administration, where it seems likely that the degree of savings from health reform will vary somewhat from state to state.

 

Also, in determining state by state employment impacts, we use CMS' most recent state by state data, which are from 2004.