Rising healthcare costs in the United States are making employers outside the healthcare sector cut their payrolls and reduce their workforce, according to a new study from Yale University.

The study found that higher healthcare prices lead non-healthcare employers to cut jobs, especially those of middle-class workers. In an average county, a 1% increase in healthcare prices would reduce the area’s total income by about $8 million each year.

“When healthcare costs go up, jobs outside healthcare go down,” the researchers explain.

Bearing the burden

It’s well known that employer-sponsored health insurance links healthcare markets with labor markets. This research shows that middle- and lower-income workers are bearing the burden of rising healthcare costs, often losing their jobs as a result. “Rising healthcare costs are increasing economic inequality,” the authors note.

To understand how rising healthcare prices affect job markets, the researchers looked at insurance claims for about a third of adults with employer-sponsored insurance, healthcare premium data from the U.S. Department of Labor, and IRS data from all U.S. income tax returns filed between 2008 and 2017.

Using this data, they tracked how a $2,000 increase in a $20,000 hospital bill affects health spending, insurance premiums, employer payrolls, income, and unemployment in counties, as well as federal tax revenue.

“Many think insurers or employers bear the burden of rising healthcare costs, but it’s really the workers who are impacted,” the researchers explain. “Rising healthcare prices hurt employment outcomes even for workers who never went to the hospital.”

Rising costs

The authors used hospital mergers to study the effect of price increases. From 2000 to 2020, over 1,000 hospital mergers occurred among the roughly 5,000 U.S. hospitals.

In earlier work, the authors found that about 20% of hospital mergers should have been expected to raise prices by reducing competition, according to guidelines from the Department of Justice and the Federal Trade Commission. These mergers, on average, raised prices by 5%.

“We can estimate the effect of hospital mergers,” they say. “A merger that raised prices by 5% would result in $32 million in lost wages, 203 lost jobs, a $6.8 million reduction in federal tax revenue, and a death from suicide or overdose of a worker outside the health sector.”

The study also showed that because rising healthcare prices lead firms to lay off workers, hospital mergers also result in more government spending on unemployment insurance and less tax revenue for the federal government.

“It’s vital to point out that hospital mergers raise federal spending and lower tax revenue at the same time,” the authors conclude. “Rising healthcare prices harm the economy, leading to fewer jobs and the negative consequences of unemployment.”