The Economic Impact of the Local Healthcare System on the Owsley County Economy

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1 The Economic Impact of the Local Healthcare System on the Owsley County Economy Executive Summary The healthcare industry is often one of the largest employers in a rural community and serves as a significant driver of economic development. The healthcare sector plays four major roles in rural economic development. First, because the local healthcare system serves local residents, healthcare expenditures stay local, and as a results, the dollars stay within the local economy. Second, healthcare systems attract external dollars into a community from outside a local area, largely through payments from private insurance companies, Medicare and Medicaid. Third, the existence of a quality local healthcare system is important to retaining existing local businesses, as well as attracting new industries into a community. Finally, a local healthcare system will support and promote a healthy and productive workforce within a community. In many instances the economic importance of the healthcare sector is described as its economic impact on the local economy through the number of jobs, revenue and income created from the industry. Table 1 summarizes the impact of the healthcare sector on Owsley County s local economy. The local impact includes the direct, indirect and induced impacts, incorporating the multiplier effect. Overall, the healthcare sector generates approximately $13 million dollars in sales, $5 million dollars in labor income and 183 jobs within Owsley County. Table 1 Economic Impact of the Local Healthcare System Multiplier Type Direct Impact Multiplier Total Impact Output (Sales) $11,484, $13,127,021 Labor Income $5,054, $5,481,232 Employment (Jobs) Source: IMPLAN 2014

2 I. Introduction Over the last two decades, healthcare services have become a critical engine of growth in rural Kentucky. The healthcare sector is the second largest industry in rural Kentucky, trailing only local government. Very few rural communities have realized the full potential of local healthcare as an economic and community development tool. Rural communities have an extraordinary opportunity to improve their local economy by treating healthcare as an economic development strategy. Each healthcare service locally benefits the rural community in two ways. First, it improves people s health and, second, it contributes to the health of the local economy. This report documents the economic impact of Owsley County s healthcare system. The impact is measured by the number of jobs and income directly and indirectly associated with the local healthcare system. The report begins by describing the role of healthcare in local economic development. The next section examines the current status of the local economy and relative importance of the healthcare industry. The third section demonstrates the direct and indirect economic impact or the healthcare system on the local economy. Finally, we provide a summary of the economic impact on Owsley County from the local healthcare system. II. The role of local healthcare in economic development The role of healthcare in economic development is determined by the financial and non-financial linkages with the rest of the local economy. Financial linkages are based on the link between healthcare provider s expenditures and revenues and other local expenditures and revenues. The healthcare sector and other industries often mutually support one another through purchases and sales. These financial linkages create a larger local economy. The most important financial role for the local healthcare system is to keep local healthcare dollars at home. There are many sources of local healthcare dollars including private insurance, consumer out of pocket payments, Medicare and Medicaid transfer payments. If these expenditures leave the economy, they represent a potential loss of income and jobs for the local residents. An outmigration of healthcare services is payment for services that are received outside of the local area. This bypass of local healthcare remains an important issue for many rural healthcare providers and rural communities. If healthcare providers can attract patients or payments from outside of their community, the healthcare industry can act as an export industry. The identification of a community s supply-demand gap will assist a community in keeping healthcare dollars at home. A supply-demand gap occurs when a local economy does not supply (provide) the goods or services demanded (needed or wanted) by an individual or a community. Consequently, residents are then forced to out-shop and make purchases outside their own community.

3 Non-financial linkages are based on the healthcare sector s role in retaining local physicians, promoting a more productive workforce, attracting new businesses and retaining existing ones. Although these may be measured through financial outcomes, generally the link is more indirect. Nevertheless, a strong healthcare system can promote economic development in a variety of nonfinancial ways. In today s economy, a productive workforce is critical to businesses, and is vital in the recruitment of new firms and the retention of existing firms. The health status of local workers can be an important ingredient in productivity. Long-term economic benefits can be realized when the local workforce has access to and uses preventive care, leading to unproved worker productivity. III. The Owsley County local economy An examination of the sources of personal income in the community can lead to a better understanding of the potential sources of revenue for local healthcare providers. In 2014, the average per capita income for Owsley County was $26,778. This was $10,281 less than the Kentucky average and $19,636 below the national average. Table 2 indicates that 29.6% of the total personal income for Owsley County was generated through earnings (place of residence), while 61.4% of the total personal income was from transfer payments, such as Social Security, Medicare and Medicaid. The reminder of total personal income is represented by dividends, interest and rents. Table 2 Income and Earnings Overview ($1,000) Source of Income, Earnings, Transfer Payments County Total ($) County Percent (%) State Percent (%) National Percent (%) Total Personal Income $122, Earnings by Place of Residence $36, % 60.3% 62.5% Transfer Payments $75, % 24.2% 17.2% Total Earnings by Place of Work: $28, Wages & Salaries $18, % 70.9% 66.5% Proprietor s Income $1, % 10.4% 11.9% Other Labor Income $7, % 18.7% 21.6% Transfer Payments: $75, Retirement & Disability $13, % 34.2% 32.9% Medical Payments $45, % 44.9% 46.1% Other Transfer Payments $16, % 20.9% 21.0% Source: Bureau of Economic Analyses (BEA), 2014

4 Table 3 details Owsley County s transfer payments by type, for 2009 and By comparing Table 3 to Table 4 on next page, it is evident that the change in private industry is less than the change in federal and state transfer payments to individuals. Private industry changed by -9.7% while total transfer payment to the county changed by 23.5% from 2009 to The change in transfer payment is primarily driven by Social Security, Medicare and Medicate payments. Table 3 Transfer Payments ($1,000) Transfer Payment Percent Change Medical Payments $33,853 $44, % Retirement Benefits $11,349 $12, % Income (welfare) benefits $11,381 $11, % Unemployment Insurance $1,336 $ % Total Transfer Payments $61,116 $75, % Source: Bureau of Economic Analysis (BEA), 2014 Graph 1 highlights the public insurance coverage for Medicare, Medicaid and VA, as well as percent uninsured, for 2013 and As the graph illustrates, the percent of people uninsured decreased from one year to the other. Overall the percent of people covered through Medicare, Medicaid and VA changed by 4.5% from 2013 to Graph 1 Percent Population with Public Insurance or Uninsured Source: U.S. Census, 2014

5 The Owsley County economy is comprised of a diverse group of industries, including manufacturing, construction, retail trade, educational services and healthcare and social assistance. Table 4 and Graph 2 provide an overview of earnings and employment, respectively, for those industries that are present in Owsley County. The healthcare and social assistance sector is one of the top industries in both, earnings and employment. Table 4 Earnings by Industry ($1,000) Industry 2009 Income 2014 Income Percent Change ( ) Total earnings $22,149 $20, % Forestry, fishing & related activities $506 $ % Mining, quarrying & oil & gas extraction $81 $ % Utilities n/a n/a n/a Construction $1,299 $ % Manufacturing $339 $ % Wholesale trade $692 $ % Retail trade $1,767 $1, % Transportation & warehousing $945 $ % Information $496 $ % Finance & insurance $725 $1, % Real estate & rental & leasing $29 $ % Professional, scientific & technical services $233 $ % Management of companies & enterprises n/a n/a n/a Administrative services $397 $ % Educational services $4,259 $4, % Health care & social assistance $6,536 $5, % Arts, entertainment & recreation $12 $ % Accommodation & food services $103 $ % Other services (except public admin.) $680 $ % Government & government enterprises $1,772 $1, % Source: JobsEQ, 2014

6 Graph 2 Employment by Industry *Including social assistance Source: JobsEQ, 2014 IV. Economic Impact Analyses Healthcare employees and professional are often a major source of economic impact in the local economy, particularly if a local hospital is present. The impacts of the local healthcare system expenditures as well as the healthcare employee expenditures are called multiplier effects. In essence, the multiplier represents the recycling of local dollars and income in the community. This in return, creates new job opportunities and higher wages for individuals. The leakage of dollars and income out of the community, via taxes or non-local spending, reduces the size of the multiplier and the potential size of the economy. Table 5 provides the multipliers for output, employment and labor income for the healthcare sector in Owsley County. The Output (sales) multipliers represent the total change in local sales revenue due to a $1 change in healthcare sales. The employment multiplier gives the total jobs generated from one new job in the healthcare sector and, the labor income multiplier represents the total impact on labor income from a $1 increase in labor income in the healthcare sector. For example, an output multiplier of 1.4 suggests that for every $1 spent in direct sales by the healthcare sector, the indirect and induced effect to the local economy is an additional $0.40.

7 Table 5 suggests that the healthcare sector alone is directly responsible for generating approximately $11 million in output, nearly $5 million in income, and employs 165 people (2014). The direct impact of the healthcare sector comes from ambulatory and healthcare services (including offices of physicians, dentists and other healthcare practitioners, outpatient care centers, medical and diagnostic labs, home care services and other ambulatory services), hospitals and nursing and residential care facilities (Table 6). Table 5 Economic Impact of the Local Healthcare System Multiplier Type Direct Impact Multiplier Total Impact Output (Sales) $11,484, $13,127,021 Labor Income $5,054, $5,481,232 Employment (Jobs) Source: IMPLAN, 2014 Table 6 Direct Economic Impact of the Healthcare Subsectors Healthcare Subsector Output (Sales) Labor Income Employment Ambulatory Healthcare Services $6,151,591 $2,222, Hospitals* n/a n/a n/a Nursing & Residential Care Facilities $5,333,283 $2,832, * Includes health care institutions that provide medical, diagnostic, and treatment services that include physician, nursing, and other health services to inpatients and the specialized accommodation services required by inpatients. (BLS, Source: IMPLAN, 2014 Overall, through direct, indirect and induced effects, the total economic impact of the healthcare sector is nearly $13 million in sales, $5 million in labor income and almost 183 jobs in Owsley County. Prepared By: Community and Economic Development Initiative of Kentucky (CEDIK), 2016 Questions or concerns regarding this analysis should be directed to Dr. Alison Davis, Executive Director at CEDIK via , at Alison.Davis@uky.edu.