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Manhattan Institute

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City Work The State Wastes Health-Care Dollars


City Work The State Wastes Health-Care Dollars

February 20, 2001
Health PolicyOther
Urban PolicyOther

THE UPWARD spiral of health-care costs in America is nowhere more intense than in New York, where per-capita spending on health care nearly doubled in the 1990s, further widening the gap with the rest of the nation. Health-care spending now averages about $4,720 per person annually in New York, about 25 percent higher than the national average.

New York has achieved this dubious distinction in part because of the extravagance of its leaders in Albany, who impose more mandates on coverage than most other states, and who finance huge subsidies for hospitals by taxing its citizens and businesses.

Nothing better exemplifies the carefree way that the state runs up its citizens’ health-care bills than the $150 million in hospital-worker retraining money that Albany is now spending. This money, dished out through grants to politically powerful groups like 1199, the National Health and Human Services Employees Union, is intended to retrain hospital workers laid off because of health-care reform. But hospital employment is actually stable in the state and even growing in some regions, and jobs are generally plentiful. Still, the money is getting spent, a bad investment of the state’s precious health-care dollars.

The retraining program began in 1996, when state leaders decided to end New York’s system of regulating hospital prices because it had grown too expensive to maintain. Health-care advocates warned that de-controlling prices might force hospitals to lay off thousands of workers, so politicians dedicated millions of dollars to retrain those who lost their jobs. For good measure, state officials persuaded the federal government to kick in $300 million in retraining money, too.

Health-care groups used the money to set up fancy retraining programs and began preparing workers for the worst. Then a funny thing happened: Despite the nearly hysterical warnings about impending health-care layoffs, few hospitals actually cut staff. In New York City, which with all its huge medical centers was supposed to be ground zero for the meltdown, hospital jobs slumped by 3,000, or about 2 percent, in 1997, but then employment almost immediately bounced back and has grown for three consecutive years. Today, city hospitals employ 156,00 workers, more than ever before. In Queens, the health-care industry is the biggest employer, surpassing transportation.

The training programs couldn’t spend all the money fast enough. By mid-1998, $148 million in unused money sat in a retraining fund until Dennis Rivera, the politically astute head of the hospitals’ workers union, recommended that it be given to hospitals, on top of the $1.6 billion a year in subsidies they were already receiving. The extra money made it even more unlikely that hospitals would have to lay off workers.

That, one would have thought, would have been the end of the affair. But during negotiations in 1999 to renew the health-care act, Albany politicians, who never seem to take away what they have once granted, pumped another $150 million in retraining money into the pot.

The first grants under the new bill, totaling about $30 million, have been announced by the state Department of Health, and not surprisingly, politically connected groups got big chunks of it. Rivera’s union, for instance, is receiving more than half of the money, most of it going to its New York City operations, where hospital employment is robust.

Union and hospital advocates say the money is necessary because even though jobs aren’t disappearing, technology is evolving and workers’ roles are changing in hospitals. But such changes are occurring in many industries, and government can’t fund retraining in all of them.

It gets more and more difficult to know what to believe from the state’s health-care advocates and hospitals, who now regularly claim that some new health crisis is about to engulf the state. Earlier this month, for instance, a group of hospital associations unveiled a new plan to deal with what they now say is a shortage of hospital workers-the very same hospitals who have been warning us of widespread layoffs for the past four years. Naturally, the hospitals want money from Albany to solve the new problem, even as Albany already spends millions to retrain workers who aren’t being laid off.

All of this would be absurdly funny if it weren’t costing the average New Yorker a pretty penny. The retraining pool is funded as part of a medical education surcharge on the bill of everyone who buys health insurance in New York State. In New York City, the surcharge is $360 a year, nearly the equivalent of one month’s premium for family health coverage.

In the end, most of this retraining money will wind up being wasted, or cleverly funneled back to hospitals to finance still more jobs, regardless of whether they are necessary. That’s a $150-million bill that New Yorkers, already burdened by soaring health-care costs, shouldn’t have to pay.