1. Health Care and the Health of the Massachusetts Economy Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy Northeastern University Boston, Massachusetts Anne Habiby Senior Research Associate Center for Urban & Regional Policy September 7, 2007

2. The “Super Cluster” - Health care in Massachusetts The health care cluster powers much of the Massachusetts economy and its competitiveness. Health care comprises 25 percent of all employment in New England, and is the largest employer in most Massachusetts cities – once job multipliers are considered. Tertiary hospital services and biotechnology generate considerable further employment and supplier opportunities in medical research and consulting, IT processing and software development, and pharmaceuticals and medical devices. Every healthcare job generates a further job in support areas including construction, transportation, utilities and communication, finance, insurance and real estate, wholesale and retail trade, and state and local government.

3. The High Cost of Living in Massachusetts BUT … Massachusetts’ health care costs are among the highest in the nation, and higher by a significant factor. There is good reason to believe that high health care costs in combination with high housing costs have led to slower job growth in Massachusetts and have contributed to the loss of young workers who seek regions with a lower overall cost of living. Ultimately, in the global economy where people and business are more mobile than ever, every community is at risk of losing out to competitors. What we now know is that the cost of living and the cost of doing business is a critical factor in employment growth, net migration, and overall economic development. The high cost of health care in the Commonwealth now jeopardizes the state’s prosperity

4. Boston $64,656 Source: Economic Policy Institute, “Family Budget Calculator, 2005” Universe: 304 U.S. Metro Areas Boston’s High Cost of Living

5. Boston Family Budget – 4 Persons Housing Costs: 7 th Highest MSA Child Care: 7 th Highest MSA Health Care: 7 th Highest MSA Personal Care: 6 th Highest MSA Fed/State Tax: 2 nd Highest MSA Total Cost:1 st Highest MSA Economic Policy Institute, Family Budget Calculator, 2005 Among 304 U.S. Metropolitan Areas

6. Top Decile: Metro Area Cost of Living Boston $ 64,656 Washington (D.C. portion) $ 61,440 Nassau-Suffolk, NY $ 60,780 Stamford-Norwalk, CN$ 60,720 Lawrence (Mass. portion) $ 59,280 New York, NY$ 58,656 Barnstable-Yarmouth, MA $ 58,236 San Francisco, CA $ 57,624 Worcester (Mass. portion) $ 55,704 Springfield, MA$ 55,320 Minneapolis-St. Paul, MN$ 54,948 Nashua, NH $ 54,852 Santa Cruz-Watsonville, CA$ 53,808 Oakland, CA $ 53,412 San Jose, CA $ 52,800 Pittsfield, MA $ 52,632 Rochester, MN $ 51,288 Monmouth-Ocean, NJ$ 50,736 San Diego, CA $ 50,088 Newark, NJ$ 49,992 New Haven-Meriden, CN $ 49,848 Honolulu, HI $ 49,824 Philadelphia (Pa. portion) $ 49,716 Boulder-Longmont, CO$ 49,596 Bridgeport, CN$ 49,272 Manchester, NH $ 49,152 Santa Rosa, CA$ 48,924 Albany-Schenectady-Troy, NY $ 48,900 Hartford, CN$ 48,684 Trenton, NJ$ 48,576 Rochester, NY$ 48,540 Economic Policy Institute: Family Budget Calculator Universe: 304 U.S. Metro Areas

7. Boston Monthly Housing$1,266 Monthly Food$ 587 Monthly Child Care$1,298 Monthly Transportation$ 321 Monthly Health Care$ 592 Monthly Other Necessity$ 500 Monthly Taxes$ 824 Monthly Total$5,388 Annual Total $64,656 Raleigh-Durham-Chapel Hill Monthly Housing$ 779 Monthly Food$ 587 Monthly Child Care$ 866 Monthly Transportation$ 358 Monthly Health Care$ 368 Monthly Other Necessity$ 369 Monthly Taxes$ 350 Monthly Total$3,677 Annual Total $44,124 A Tale of Two Cities Source: Economic Policy Institute, “Family Budget Calculator, 2005”

8. Low Cost High Cost Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics -0.21% 0.93% -0.02% 0.84% 1.06% 0.50% 1.09% 1.98% 0.62% 2.53% Universe: 245 U.S. Metro Areas High Cost of Living Diminishes Employment Growth

9. -2.12% 0.16% 1.54% 1.40% 2.19% 1.04% 0.60% 0.41% 0.19% 0.39% Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census Universe: 304 U.S. Metro Areas Boston Very High Cost of Living Reduces Population Growth

10. Measuring Up? The Cost of Doing Business in Massachusetts Global Insight Report - 2006 MARINHNCTX Bio Manufacturing16.4%16.8%19.4%19.8%20.8% Software24.1%26.4%33.8%33.9%34.2% Medical Devices11.1%12.5%18.5%20.4%19.8% Relative Cost of Living for M. Devices (US=100)133.6122.5106.991.195.8 MA is very close to RI, as well as NJ and NY for the three industries. However, MA is very uncompetitive with NH, as well as NC and TX. The factor driving differences is annual pay, which is heavily influenced by cost of living. High annual pay can only be sustained with a very skilled labor force. Profit After State Tax

11. What is the Health Care Economy? The health care super cluster can be divided into its local and traded components. Bifurcating the cluster into local and traded is an effective way to understand what drives the growth and potential of the parts of the system. –Growth in the local component is driven by growth in population and changes in preferences/needs of that population. –Growth of the traded component is theoretically unbounded, yet more volatile.

12. The Local Economy – negative growth factors loom With no population growth, we are poised to experience unhealthy local economic growth due to aging of the population and change of demographic mix, increasing the incidence of chronic disease. We will also see aging of the workforce and health care labor shortages. We are rapidly expanding the AMC’s high-cost infrastructure with new facilities in the suburbs. Negative growth of the local economy will increasingly crowd out municipal and state investments in education and other areas. Our goal should be no growth of the local economy.

13. LOCAL TRADED Infrastructure Physical Financial Public Policy Organizational It is imperative that we lead on behavior change science. A new understanding of healthcare - Is there a wellness marketplace? WellnessSicknessResearchCommercial Chronic under- investment Too much infrastructure in high cost structure Absence of evidence based research in wellness Underperforming given our infrastructure Burden to EconomyBenefit to Economy CA 3X private equity and FDA approvals