Health care’s Great Resignation will cost employers

Published in BenefitsPro on 4/13/2022

Brian Klepper, Jeffrey Hogan and John Rodis

Four months ago, a Morning Consult poll reported that, since February 2020, almost one in five (18%) health care workers had quit their jobs due to the pandemic. Then a USA Today/Ipsos Poll found that 23% of health care workers say they’re likely to leave health care soon.

As it turns out, these figures are misleading. Relatively few health care workers have left the industry entirely. Most who have moved have gone to higher-paying health care jobs. A recent Altarum Institute analysis found that hospitals’ workforces fell only 1.8% since February 2020. A December Washington Post article reports that hospital staff nurses are tripling their hourly rate by taking travel gigs with short-staffed health care organizations. A just-out New Jersey Hospital Association survey estimated that its members’ 2021 spending for agency and travel staffing grew three-fold over the previous year, consuming an additional $450 million.

In other words, the COVID-induced provider labor shortage has been a windfall for health care workers willing to take advantage of new opportunities. But it has added significant costs for hospitals, medical groups, nursing homes and other providers that must pay more to recruit replacements and to keep existing employees from straying. It’s clear that this problem is the tip of an iceberg; COVID has saddled health care organizations with all kinds of expensive new problems.

These unexpected costs could have far-reaching impacts on health care’s structure and function. Employers have become accustomed to (and have been frustrated by) health coverage premium inflation that, over the last decade, has relentlessly grown 47%, more than twice as fast as general inflation (23%).

It is reasonable to anticipate that, in the near future, providers will demand rate hikes to cover their increased overhead. These new financial burdens will fall hardest on the employers and unions that pay for a sizable portion of US health care coverage.

Many employers may be unwilling or unable to absorb these new costs. High-margin businesses, like those in the technology and finance sectors, may see the increases as inconsequential. But most employers are experiencing cost increases throughout their supply chains. Many are struggling, and a new health care cost demand is likely to raise their collective ire. Rank and file businesses and governmental units may see the increase as a threat to their viability, and employers in low margin sectors could be forced to choose between financial stability or paying a good deal more than expected for health coverage. Some will opt out.

A sizable drop in health coverage would reverberate into several notable impacts. Of course, access to health care for employees and their families would deteriorate. Providers will find it costly to onboard new recruits into organizational operations, and to re-establish patient relationships that have been rattled by staffing changes. Emergency department utilization would spike with patients seeking immediate care, while emergency service revenues would tumble. Now more reliant on self-paying patients, providers’ elective procedures and revenues would fall and the health care labor market would loosen. The rhythm of the provider community’s businesses would be utterly disrupted.

At the same time, the health care coverage market might give new strength to the torrent of new value-focused vendors that offer better health outcomes and/or lower cost in high-value niches—e.g., management of musculoskeletal care, chronic conditions, maternity care, specialty drugs—than most currently available care. Many high-value companies like these have, until now, found themselves blocked by the major legacy players that make more if health care costs more.

As costs reach a tipping point, employer purchasers will most likely determine health care’s shape going forward. To find affordable coverage for their employees and their families, purchasers may resort to going around their brokers’ and health plans’ offerings, and being more receptive to direct contracts with proven high-value health solutions. That could foil the excessive care and cost practices that have dominated American health care for decades.

Health care’s dysfunctions are so deeply embedded in both policy and the marketplace that achieving meaningful reform is all but impossible. A powerful and sudden financial nudge could loosen the grip of health care’s dominant players, offering purchasers the opportunity to buy health care differently, favoring approaches that consistently deliver better results, and allowing a more competitive health care marketplace to quickly take shape.

There is no question that the scenario we’ve described would exact a temporary but difficult toll from every American individual and business. But if it forces a more rational, accountable and value-based reorganization of US health care for the long term, the COVID pandemic, painful as it has been, might just be the catalyst required to accelerate the movement to value.

Brian Klepper, PhD, Jeffrey Hogan and John Rodis, MD each lead independent consulting practices focused on health care value and high performance.

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