Donald Trump said on the campaign trail that he would end forever the use of the H-1B as a cheap labor program and institute an absolute requirement for American companies to hire American workers first, with no exceptions. What would the ramifications be for the healthcare IT industry if the new Trump administration takes action on this promise?
The H-1B visa program is a hot button issue for Americans, one that Donald Trump seized on during his presidential campaign. See www.donaldjtrump.com/press-releases/donald-j.-trump-position-on-visas. The issue is especially relevant to the healthcare and IT industries, which has used the H-1B program to source inexpensive foreign expertise for decades. Healthcare remains near the top of the Trump administration's agenda, despite recent attempts at legislative action by the Republican party in Congress. At the same time, the issue of IT outsourcing and its relationship to American jobs simmers just below a boil.
In a recently published report, we mapped out five likely future scenarios for the H-1B visa program. See the following research:
Impact of H-1B Visa Reforms on IT Offshore Services in U.S. Healthcare: Will It Bring Back American Jobs?
|3)||Restriction in Quantity||20%|
|4)||Changes in Quality Requirements||20%|
|5)||Combination of Quantitative and Qualitative Changes||30%|
We believe that the most likely outcome is that the Trump administration will be making either substantial qualitative changes to the program or qualitative changes – or both. Changes could encompass restrictive quotas for foreign workers, determined by salary, skill level, etc. Certain job positions could be targeted for preservation, reduction, or even an increase. It is possible that exemptions for U.S. educational or research institutions could be altered, and that U.S. healthcare organizations (HCOs) and healthcare educational institutions could even do better at the expense of large Indian outsourcing companies.
All the major stakeholders are watching carefully and preparing to react. We detail many of the potential reactions of the major stakeholders in our research. Here are a few highlights:
- Indian outsourcers are already hedging against potentially substantial changes, and their responses are taking or may take a variety of forms. For example, N.R Narayana Murthy, president and co-founder of outsourcing firm Infosys Limited, one of the largest Indian outsourcers, suggested in February that the company would recruit more from US campuses in response to the "America First" agenda.
- H1-B applicants are bracing for what lies ahead, although some workers of foreign origin may actually benefit. The uncertainty about the labor market alone boosts their premium. However, we believe that many of the best potential applicants for U.S. positions are likely to be diverted to other opportunities in their home countries or to other nations where their talents could be employed competing against U.S. firms in the global economy.
- U.S. healthcare organizations (HCOs) are also very likely to be watching events in Washington carefully. In addition to lobbying quietly for their interests, they are likely taking defensive steps such as hedging via new hiring policies.
The Political Case Against H1-B
The main argument against the H-1B visa program is that US companies use it to obtain inexpensive labor from overseas, which undercuts the wages of U.S. workers. Critics also argue that the H-1B visa program helps outsouce American labor. It is true that an industry of Asia-focused outsourcing intermediaries uses the H-1B visa program to funnel workers from Asia into U.S. firms. Large IT services companies such as Cognizant, Infosys, and Tata Consulting Services (TCS) leverage H-1B visas to bring legions of foreign workers to the United States to do work for U.S. clients. (Trump Is Weeks Away from Missing His Chance to Reform Work Visas, Bloomberg, March 21, 2017). The top 5 companies using the program in 2014 were Tata (5,650), Cognizant (4,293), Infosys (3,454), Wipro (3,048), and Tech Mahindra (1,781). They accounted for over 20% of H-1B visas were awarded, while the top US tech firms' allotments of H-1B visas were only counted in the hundreds.
What Does H1-B Mean to the U.S. Healthcare Industry?
Viewed through the prism of healthcare, the H-1B issue epitomizes the fundamental contradiction of "trying to put American jobs first" and make American healthcare better and affordable. Changes to the H-1B visa program will disrupt the U.S. labor market for specialized skills and the healthcare organizations (HCOs) that rely on the H-1B program to both directly and indirectly source foreign workers directly for specialized roles in IT, clinical care, healthcare administration, research, etc. For example, Humana, the third largest health insurer, has successfully petitioned for 302 H-1B visa holders in 2016. (Note, however, that Humana may actually employ many more additional H1-B applicants indirectly through the large outsourcing companies that the insurance carrier works with.)
We believe that any short-term changes in the healthcare H-1B labor market will inevitably have to be reversed by government and private sector initiatives to reduce healthcare costs. Americans understand intuitively that the cost of healthcare can't be allowed to continue to rise as it has since 1980. The U.S. Bureau of Economic Analysis estimates that in 2015, U.S. healthcare cost 4.8 times more than it did in 1980, while medical insurance cost 8.7 times more than it did in 1980 (see No Recovery: An Analysis of Long-Term U.S. Productivity Decline, Gallup for U.S. Council on Competitiveness, 2016). Frighteningly for American talent, productivity in the healthcare industry has declined in recent decades. Despite rising expenditures for labor and other inputs, a Harvard Business Review article in 2013 stated succinctly that "the number of patients doctors are seeing and whose care they are managing hasn't increased" (see The Downside of Health Care Job Growth, Harvard Business Review, September 23, 2013).
If the H-1B visa program substantially lifts U.S. healthcare industry IT wages, the backlash against American labor over the long term could be substantial. Changes to the H-1B program that raise the wages of U.S. IT workers will eventually undermine the HCOs and the outsourcers' competitive labor cost structure. Any rise in costs will ultimately be passed on to healthcare insurance company members, patients, and tax payers. Eventually HCOs and outsourcers will have to accelerate innovation and automation to reduce labor inputs, or find more creative ways to nearshore and offshore that circumvent the need for the employment of onshore IT talent.
What is the H-1B Program?
The H1-B visa program is difficult to assess because of its loopholes, but it mainly addresses the flow of inexpensive IT workers into the American economy. The annual quota is now at 65,000 foreign workers per year, with an additional 20,000 with advanced degree from U.S. universities exemption (www.foreignlaborcert.doleta.gov/h-1b.cfm). But there are exemptions. For example, universities, nonprofit research facilities associated with universities, and government research facilities are exempt from quota restriction (the exemption also covers contractors.) Therefore, the actual number of new employment H-1B applications approved is in the 120,000–130,000 per year range, per USCIS. About 67% of all applicants were from computer-related professions, per USCIS' "Characteristics of H-1B Specialty Occupation Workers" report for fiscal year 2015 (March 17, 2016). Many H-1B visa holders are computer-related industry workers in healthcare provider or payer environments. Most of H-1B visa holders originate in India (70.9%), with many of the remainder originating in China (9.7%).
Current H-1B Political Developments
Since January, Trump has moved to fulfill this campaign promise. First, leaked drafts of executive orders earlier showed that H1-B visa is part of Trump's larger immigration reforms. Then on March 6, U.S. Citizenship and Immigration Services (USCIS) said that it is suspending the fast-track processing of H-1B visas, starting on April 3. (The fast-track allows applicants to pay an extra fee of $1,225 to process applications faster.) At the end of March, USCIS released a memo to revise earlier guidance on computer related positions. This latest instruction requires companies to prove that the computer programming job they are filling with a H-1B foreign worker meets the new and tighter qualifications (https://www.uscis.gov/sites/default/files/files/nativedocuments/PM-6002-0142-H-1BComputerRelatedPositionsRecission.pdf).
On April 3, USCIS announced further measures to detect H-1B Visa fraud and abuse by increasing more site visits (https://www.uscis.gov/news/news-releases/putting-american-workers-first-uscis-announces-further-measures-detect-h-1b-visa-fraud-and-abuse). On the same day, the Justice Department cautioned employers seeking H-1B Visas not to discriminate against U.S. Workers (https://www.justice.gov/opa/pr/justice-department-cautions-employers-seeking-h-1b-visas-not-discriminate-against-us-workers). This means that the Trump administration is still focused on the issue.
American Jobs or Affordable Healthcare?
In the short term, changes in the H-1B visa program may result in a strengthened position for American healthcare IT workers. Wages and competition for talent would likely rise, especially if the H-1B program is substantially shut down. However, these advantages might be short lived. The U.S. would eventually feel the impact in healthcare costs and in foreign competition, either directly or indirectly, and any advantages experienced by U.S. workers will come at the expense of all the U.S. citizens who ultimately pay for U.S. healthcare. The tension between paying for American jobs and paying for American healthcare will have to be resolved, and in the long term, we believe affordable healthcare will be the most compelling imperative.