The objective of ECONOMIC INSIGHTS is to bridge the gap between the latest economic data and what it means for Delaware businesses.
Among the state’s major industries, health care ranks second in total jobs (55,300) and first in jobs added since the recession of 2008 (8,000) and first in annual jobs growth rate (2.5 percent). And Delaware health care is the least volatile of all the industries across the business cycle.
With an average wage just modestly above the total state average and with its large employee base, Delaware health care ranks second in contributing to total Delaware wages ($3.5 billion) and third in the growth of its total wage bill.
As the Medicare and Medicaid transfer payments received by Delaware residents equal more than 86 percent of the state health-care industry annual earnings, the viability of these government sources is a critical looming issue to the future growth of the industry.
Why is it happening?
Federal and state government spending on health care has been on a tear. Over the past 10 years as Delaware personal income rose by 41 percent, Medicare and Medicaid transfer payments in the state rose 92 percent. One obvious result is that health care has been the major source of job growth. There are legitimate concerns over whether this soaring government healthcare spending can continue.
Due to the beaches in Sussex County, Delaware has a proportion of persons 65 and over that exceeds the nation and the region. Consequently, over half of the $3.7 billion of healthcare transfer payments to Delaware residents comes through Medicare. The 2016 Medicare trust fund report projects that the fund will begin running a deficit in 2021 and the deficit will rapidly accelerate thereafter.
Medicaid is now the largest single item in the state of Delaware’s budget. It has been growing at a rate that is starting to crowd out other state expenditure. Meanwhile the projection for total state revenues over the next two fiscal years is flat. Something has to give.
Finally, because it is unavoidably labor intensive, Delaware’s health-care output per employee is 40 percent below the state average and has been declining slightly over the past decade.
All of these factors indicate slower growth ahead for the health-care industry in Delaware.
The implications for business?
Federal and state government spending on health care either needs to be curtailed or more revenue found.
The federal government has been decidedly unsuccessful at capping reimbursements, especially to physicians. The state of Delaware proposes to reduce health-care costs by reducing competition in the industry. So don’t expect any radical changes on the supply side.
The federal government has modestly increased the progressivity of Medicare co-pay and discussed raising the minimum age of eligibility. Seniors, however, are very budget conscious and have the highest voter participation rate.
Medicaid, given the current liberal political environment, is growing as fast as Medicare, and the state of Delaware has among the most liberal Medicaid eligibility requirements in the nation. Nearly 30 percent of Delaware residents are black or Latino, and the majority of both groups are dependent upon Medicaid.
If politicians are going to allow the current growth in government subsidized healthcare to continue, the obvious target for picking up the slack in revenues is the business community. Business organizations should be preparing for this inevitability.
Dr. John E. Stapleford is consulting economist, DECON First. Contact him at [email protected]