How healthcare spending leaves US job market vulnerable to a Trump victory

The strong US jobs market is being propped up by spending on healthcare, which analysts say is vulnerable to Donald Trump’s re-election and the end of a boom in medical procedures delayed by Covid-19.

Over the past twelve months, healthcare and social assistance has accounted for almost half of new jobs, according to private payroll data, while growth in real healthcare consumption has far outstripped rises in other spending categories. 

Of the 175,000 total jobs added in April’s payroll report, 87,000 were in health and social assistance fields such as doctors’ and dentists’ offices and home healthcare. Since April 2023, the sector has made up a third of overall hiring. 

Analysts say the increase is linked to recovery from the Covid-19 pandemic, as the sector hires to meet demand from patients seeking medical treatments postponed during lockdowns.

“There was a huge population of care that just didn’t happen during the pandemic,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology.

“So we’re seeing big volume increases.”

According to data from Strata, in 2023 colonoscopy volumes jumped 24.5 per cent compared to 2019, while genetic and positron emission tomography testing — which doctors use to find tumours, diagnose heart disease and brain disorders — has increased by 16 and 11 per cent respectively over that period.

“Over the past year a lot of insurance companies have noticed that their claims numbers have been higher than anticipated, and that can be tracked back to people just using their healthcare plans again,” said Sameer Samana, a senior global market strategist at Wells Fargo.

Expansion of the Affordable Care Act and Medicaid has also contributed to the strength in hiring. ACA marketplace enrolment hit a record high of 21mn in January 2024, up from 11mn in 2020, driven by subsidies from the pandemic-era American Rescue Plan Act, and the Inflation Reduction Act.

Meanwhile, 40 states and Washington DC have opted into the ACA’s expanded Medicaid coverage for nearly all individuals with incomes up to 138 per cent of the Federal Poverty Level of $20,783.

“Medicaid expansion frees up capital to expand and staff up in a better way,” said economist Dante DeAntonio of Moody’s Analytics. 

Although economists typically pay closer attention to cyclical sectors like manufacturing, construction and professional services employment — hiring in healthcare is buttressing the economy’s resilience to income rate hikes.

“The fact that the healthcare sector is still hiring increases the number of working Americans, helping to offset some of the hit to individuals’ disposable income from high inflation and interest rates,” said Capital Economics deputy chief North American economist Stephen Brown.

“It’s certainly providing a bit of a buffer.”

Still, some analysts question whether the current strength in the sector can last.

Citi economist Veronica Clark says demand for post-pandemic procedures may fall as backlogs are cleared. 

“It makes you think how much more can this grow, how much upside really is there?” she said. “If that is the last obvious support for monthly job growth then it looks pretty vulnerable.”

The November election also places a question mark over the current level of healthcare funding. During his first term in office, Donald Trump unsuccessfully attempted to repeal the ACA, and has suggested he would be open to cutting Medicaid.

“I think a Trump presidency would pose some risk for healthcare, though the inability to push through any major changes during his previous administration makes it less certain that anything would get done,” said DeAntonio.

“It’s possible that hospitals would pull back on hiring plans in 2025 if Trump wins just as a precaution against a possible Medicaid rollback damaging their finances.”

Several Republican leaning states are seeking to adopt work requirements for recipients, which if implemented nationally could lead to 1.5mn Americans losing federal funding for their coverage, according to the Congressional Budget Authority. 

In addition, while the healthcare and social assistance job openings rate is 3 percentage points higher than in 2019, most of the gap is in the social assistance and nursing and residential care subsectors, where wages are lower than the average across the overall economy.

This means healthcare providers might struggle to compete for labour as the jobs market remains hot.

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