By Joseph Burns
New research shows how hospital mergers have troubling effects that ripple through local communities. After mergers, hospitals raise prices, leading to increases in health insurance premiums, lower wages, more unemployment and deaths from suicides and overdoses, the research shows.
When hospitals merge, hospital administrators claim (without evidence) that savings will result and quality will improve. Instead, hospital prices rise, causing health insurers to raise premiums they charge employers and workers. Rising premiums cut into wages and cause employers to layoff staff, which leads to deaths from suicides and overdoses, the researchers showed in a study, “Who Pays for Rising Health Care Prices? Evidence from Hospital Mergers,” that the National Bureau of Economic Research (NBER) published in June.
This new research confirms the findings of other studies on the negative effects of hospital mergers, as we explained last month (July 2024) and as KFF noted last year.
Outside health care: wage erosion
“Rising health care prices have long eroded American wages. They are doing that by eating into jobs,” wrote Melanie Evans, Andrew Mollica and Josh Ulick in their report on the study for The Wall Street Journal.
For their article, Evans, Mollica and Ulick quoted one of the researchers, Zarek Brot-Goldberg, an assistant professor at the Harris School of Public Policy at the University of Chicago. “Employers that face increases in health care spending respond by laying off workers who they can no longer afford to retain,” Brot-Goldberg said.
By examining what happens in local labor markets and to federal income tax revenue when hospitals raise their prices, the researchers could estimate the effect of rising health care prices on health insurers, workers, employers and the federal government.
Rising hospital prices raise the cost of labor by increasing employer-sponsored health insurance premiums, as studies such as this one published in Health Affairs Scholar in June, have shown. In the NBER study, the researchers wrote, “A1% increase in health care prices lowers both payroll and employment at firms outside the health sector by approximately 0.4%.”
Since 2000, hospital prices have increased faster than prices in any other sector of the economy, Brot-Goldberg and colleagues added. Moreover, other research suggests that hospital mergers cause hospital price increases without any apparent improvement in quality or reductions in the quantity of care delivered, they noted.
Job losses and deaths
In a summary of the study, the Becker Friedman Institute for Economics at the University of Chicago explained that a 1% rise in health care prices leads to an increase in deaths of about one per 100,000 (2.7%) because about one out of every 140 individuals who become unemployed die from a suicide or drug overdose.
In that same summary, the institute noted that the average hospital merger that raised prices by 5% or more leads to 203 job losses (mostly among workers earning $20,000 to $100,000 annually), about $32 million in lost wages and a $6.8 million reduction in federal income tax revenue. “The aggregate economic harm from one merger that raises hospital prices by 5% or more is approximately $42 million,” the institute added.
Such changes in the labor market have a substantial effect on federal and state government budgets: A 1% increase in health care prices reduces income tax withholdings by 0.4% and increases unemployment insurance payments by about 2.5%, the institute added.