The Impacts of Health Care Reform on Hospital Salaries, Wages, and Hours: Lessons from Massachusetts

The Affordable Care Act (ACA) potentially expands health insurance to over 46 million uninsured Americans. Legitimate concerns regarding a large-scale health insurance expansion focus on the possible ramifications of rising health care costs. Since one objective of the ACA is to reduce medical care costs, it is imperative to understand how health care reform potentially affects the hospital labor market. This study employs a difference in differences estimation strategy and data from the Centers for Medicaid and Medicare Services (2000-2009) to identify the effect of health care reform in Massachusetts on hospital salaries, wages, and number of hours worked per employee. The results suggest that the implementation phase of the reform (2006-2007) significantly increases total salaries paid by the hospital. Each additional person with insurance coverage through exposure to the law is associated with an increase in total salaries by approximately 19 dollars. This equates to an increase in total salaries for an average hospital in Massachusetts by 5.7 million dollars. This increase is largely driven by an increase in the total number of hours worked rather than an increase in wages. Each additional person insured significantly increases the total hours worked per employee by 0.0010 equating to an additional 300 hours over the course a year (or approximately 6 hours per week) as a result of reform implementation. This suggests that hospitals use overtime rather than the addition of personnel to meet unexpected demand changes resulting from reform. Other specifications examining the impact of the reform on average wages and total number of employees found insignificant effects while significant effects were found on total hours worked. Within the post-reform period, the results demonstrate an insignificant effect on total salaries, wages, and total hours per employee. This pattern of hospital staffing is consistent with patterns of hospital utilization following the reform. All results are robust to variations of the comparison states. These findings also have important implications for the understanding future cost containment within the hospital sector. Since labor costs represent about 35 percent of all hospital cost growth, this research suggests that health care reform may have the potential to bend a major component of the health care cost curve.