Impact of the Economy on Health Care

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In the United States, the economy shapes the complex interactions among employment, health coverage and costs, as well as financial access to care and health outcomes. Available evidence indicates that, as in previous downturns,^1,2 few employers plan to drop health coverage or restrict employee eligibility. More commonly, they seek to reduce costs by changing benefits and cost-sharing provisions.³  However, in this recession, massive job loss has overwhelmed the capacity of the employment-based system. A new Urban Institute model estimates that moving from the baseline rate of 4.6 percent unemployment in 2007 to a rate of 10 percent would result in 13.2 million fewer people with employer-sponsored health coverage, offset by an increase of 5.4 million enrolling in Medicaid and the Children's Health Insurance Program (CHIP) and 1.8 million in non-group coverage. This would result in an additional 5.8 million uninsured non-elderly adults and children.⁴ Employees in low-wage jobs, those working in small firms, and those in certain industries are historically far more likely than others to have been uninsured when they lose their jobs, but this recession is affecting a broader swath of the workforce. The design and cost of employer-sponsored coverage has also changed over time, contributing to a decline in the rate at which employees are choosing, or able, to take up insurance.⁵ Further, more people are finding work in jobs that do not offer health benefits; employer-sponsored coverage may decline over time regardless of the strength of the economy.⁶

The economy also effects health care organizations and practitioners. There is evidence that the recession has kept patients from seeking inpatient and elective services,⁷ and that physicians and institutional providers are seeing more patients who are unable to pay for their care because they are uninsured or underinsured.⁸ Hospitals have reported scaling back on capital improvements, including upgrades and new clinical and information technology.⁹ The effects of economic contractions run counter to the sustained growth in the health sector;¹⁰ the current recession slowed but did not reverse the growth of health jobs overall.¹¹ Two dominant structural trends—growth and consolidation—are likely to continue to reshape health care delivery, but reform legislation and related changes in federal investment in health information technology and health manpower could significantly affect the speed as well as direction of changes.

The recession has also led some health care professionals to revise their career and retirement plans. Economic worries appear to be pushing some nurses to reenter the job market ¹² or delay retirement, at least until the economy turns around.¹³ Physicians who have lost significant amounts of their investment portfolios may be postponing their retirement, either by continuing in their current practice longer than they had planned, or by establishing arrangements with hospitals or other provider groups.¹⁴ In the short term, physicians' need to keep working could possibly offset a predicted shortage of primary care doctors. But if physicians are concerned about generating revenue to replace investment losses, economic incentives to work in higher-paid subspecialties could become even more intense.¹⁵

Research on the effects of economic cycles on health is perplexing. A number of studies have found that health outcomes, as measured by mortality rates, are countercyclical, that is, mortality rates are worse (higher) when the economy gets better.¹⁶ But economic downturns have also been linked to markedly higher rates of cancer deaths and homicides, and to a wide range of psychiatric disorders as well as alcohol and substance abuse.¹⁷ Some research suggests that people may be more careful about diet and lifestyle when they are worried about money, other evidence points in the opposite direction.¹⁸ There is also evidence of systemic problems that predate the current recession. Data from the National Health Interview Survey from 1997–2008 show a generally increasing trend in the percentage of people who reported that they failed to receive needed medical care due to cost over the course of the year.¹⁹     

To evaluate reforms, or to understand the full impact of failing to make changes to the health care coverage and delivery systems, researchers will need to draw on more complete data than is now readily available. This would include data that link people, their insurance coverage, their health care utilization, costs, and health outcomes, and how these interrelated factors change over time and across different populations.   

A recent HCFO policy brief by Jill Bernstein, Ph.D. addresses issues related to the impact of the economy on health care in greater detail.

1 Research on earlier economic cycles found that employers typically respond to the pressures of economic downturns by shifting premium costs to employees rather than dropping insurance benefits altogether. Gruber and McKnight analysis covering 1982-1996, for example, found a 10 percentage point increase in the unemployment rate was associated with roughly a 1.2 to 1.7 percentage point decrease in the probability that the employer would cover the full cost of employees' insurance costs. Gruber, J. and R. McKnight, “Why Did Employee Health Insurance Contributions Rise?” NBER Working Paper 8878, National Bureau of Economic Research, April 2002.  
2 Employer-sponsored coverage did not, however, return to pre-recession levels in the recovery that followed the recession in the first part of this decade. Overall levels of health coverage fell even when the economy was good, as employees who could elect to receive benefits opted not to when their premium costs continued to increase. Cutler, D. “Employee Costs and the Decline in Health Insurance Coverage,” NBER Working Paper 9036, National Bureau of Economic Research, July 2002.
3 “Employee Health Benefits 2008 Annual Survey.” Publication No. 7790, Kaiser Family Foundation and Health Research and Educational Trust, September 2008.
4 Holahan, J. and  A. B. Garrett, “Rising Unemployment, Medicaid and the Uninsured,” Publication #7850, Kaiser Commission on Medicaid and the Uninsured, Henry J. Kaiser Family Foundation, January 2009.
5 Cunningham P., Artiga, S., and K. Schwartz. “The Fraying Link between Work and Health Insurance: Trends in Employer-Sponsored Insurance for Employees, 2000-2007,” Issue Paper, Kaiser Family Foundation, November 2008.   
6 Reschovsky, J. et al., “Why Employer-Sponsored Insurance Coverage Changed, 1997-2003,”   Health Affairs, Vol.  25, No. 3, May/June 2006: pp. 774-82.
7 “The Economic Crisis: The Toll on the Patients and Communities Hospitals Serve,” American Hospital Association, April 27, 2009. Also see www.aha.org/aha/press-release/2009/090427-pr-economy.html.   
8 See, for example. Sack, K. “Bad Economy Leads Patients to Put Off Surgery, or Rush It,” New York Times, March 14, 2009; Girion, L. “Hospitals in California and Elsewhere are Hurting from Financial, Economic and Government Crises Hitting All at Once,” Los Angeles Times, January 14, 2009; Haynes, V. “Hospitals Preparing Triage for Budgets,” Washington Post, June 25, 2009; Yee, C. “Recession Afflicting Metro-Area Hospitals,” StarTribune, December 7, 2008.  
9 The March, 2009 American Hospital Association survey found that about a quarter of responding hospitals had scaled back or decided not to move forward with IT projects, and one third were scaling back or canceling clinical information projects. “The Economic Crisis: The Toll on the Patients and Communities Hospitals Serve,” American Hospital Association, April 27, 2009. Also see ww.aha.org/aha/press-release/2009/090427-pr-economy.html.   
10 The current recession increases the demand for care in community settings that provide subsidized or low cost care. Stobbe, M. “Safety Net Health Centers Struggle to Meet Demand,” ABC News, Associated Press, March 12, 2009, http://abcnews.go.com/Health/WireStory?id=7068677&page=4.  
11 Health care employment increased by 24,000 jobs in May, 2009, a rate that had remained fairly stable for the year (“Employment Situation Summary. The Employment Situation: May 2009,” BLS Economic News Release: Bureau of Labor Statistics, June 5, 2009)
12 Buerhaus, P., et al., “The Recent Surge in Nurse Employment: Causes and Implications,” Health Affairs, Web Exclusive, Vol. 24, No. 4, June 13, 2009: pp. w657-w668.   
13 California HealthLine, “Recession Prompts Calif. Nurses to Delay Retiring, Shortage Looms,” June 15, 2009.  www.californiahealthline.org/Articles/2009/6/15/Recession-Prompts-Calif-Nurses-To-Delay-Retiring-Shortage-Still-Imminent.aspx.  
14 Hospitals responding to the 2009 AHA survey reported that most (79 percent) had been contacted by physicians seeking more income from on-call or other services, physicians and seeking hospital employment (71 percent); 37 percent reported hearing from physicians interested in selling their practices to the hospital, and 22 percent were approached regarding partnering on equipment purchases. “The Economic Crisis: The Toll on the Patients and Communities Hospitals Serve,” American Hospital Association, April 27, 2009. Also see www.aha.org/aha/press-release/2009/090427-pr-economy.html.
15 Walker, E. “Financial Crisis will Impact Healthcare Heavily,” MedPage Today, October 10, 2008. www.medpagetoday.com/PublicHealthPolicy/HealthPolicy/11237.
16 See, for example, Ruhm, C. “Healthy Living in Hard Times,” Journal of Health Economics, Vol. 24, March 2, 2005: pp 341-63; Tapia Granados, J. “Increasing Mortality During the Expansions of the US Economy, 1900-1996,” International Journal of Epidemiology, Vol. 34, No. 6, 2005: pp. 1194-1202; Neumeyer, E. “Commentary: The Economic Business Cycle and Mortality,” International Journal of Epidemiology, Vol. 34, No. 6, 2005: pp. 1221-1222; Edwards, R. “Who is Hurt by Procyclical Mortality?” Social Science & Medicine, Vol. 67, No. 12, 2008: p. 2051-58.  Explanations for this phenomenon generally focus on factors that could increase mortality in active economies, such as more deaths from traffic accidents because more people are commuting to work, taking vacations, etc., more industrial production, increasing pollution as well as the probability of accidents, more cardiovascular illness related to work-related stress; or, changes in behavior during recessions that could reduce mortality rates, such as being more careful about eating, exercise, or alcohol use when money is tight.   
17 See for example Parker-Pope, T., “Are Bad Times Healthy?” New York Times. Well Blog. October 7, 2008. www.nytimes.com/2008/10/07/health/07well.html; Catalon, R., “Health, Medical Care, and Economic Crisis,” New England Journal of Medicine, Vol. 360, No. 8, February 19, 2009: pp. 749-51.
18 A survey conducted by the American Heart Association in March 2009 found that about a third of respondents had made changes over the preceding six months that could have negative health consequences, including delaying preventive care appointments not taking medications, or skipping dental appointments; 42 percent said they planned to make changes in the coming months that could impact their health, such as buying fewer fruits and vegetables. “Americans Skimp on Healthy Activities in Bad Economy,” News Release, American Heart Association, May 17, 2009. Link to survey results athttp://americanheart.mediaroom.com/index.php?s=43&item=737.
19 The percentage of people reporting that they have a regular place to go for medical care has also generally decreased, as has the percentage of people who said they had excellent or very good health. “Data from Early Release of Selected Estimates Based on Data from the January-September 2008 National Health Interview Survey,” National Center for Health Statistics, Centers for Disease Control and Prevention, March 2009. Also see www.cdc.gov/nchs/data/nhis/earlyrelease/earlyrelease200903.pdf;“Early Release of Selected Estimates Based on Data From the 2008 National Health Interview Survey,” National Center for Health Statistics, Centers for Disease Control and Prevention, June 23, 2009. Also see www.cdc.gov/nchs/nhis/released200906.htm