Health Care Reform as an
Economy Growth Strategy
by Elisabeth Jacobs, ASA Congressional Fellow
President-elect Barack Obama and the 111th Congress face a historic challenge this January. The global economy is in a tailspin, our nation is at war, and the planet is in peril. In the wake of the $700-billion bailout of the struggling financial industry, many in Washington have concluded that incoming policymakers must scale back their policy aspirations, particularly with regard to health care reform. This approach is the opposite direction that President Obama and the new Congress should take.
Comprehensive health reform is critical to reviving the American economy and ensuring prosperity and growth. Without reform, rising health care costs will continue to inhibit economic growth and diminish businesses’ ability to compete in a global marketplace. Workers’ wages and family savings will continue to be eaten up by skyrocketing medical bills, and state and federal budgets will face increasing burdens. Reform can serve as a key that unlocks vast reserves of unrealized economic potential.
While the path to reform remains highly uncertain, the following set of arguments provide motivation for policymakers committed to forging ahead.
Health reform will spark business innovation.
- Health care costs are rising drastically for companies. In 1960, health benefits comprised just 1.2% of payroll; today they comprise 9.9%. Average employer costs for health insurance per employee hour rose from $1.60 in 1999 to $2.59 in 2005. And according to the Kaiser Family Foundation, health care premiums for employer-sponsored plans have doubled since 2000. Since 2001, health insurance premiums have increased 78%, while inflation has gone up 17%.
- The burden of health care costs on employers leaves less money for labor and capital, which means lower wages and diminished growth. For example, Starbucks spends more on health care for its workers than it does on coffee for its customers, and Kroger, a supermarket giant, has seen its health care costs rise at three to four times the rate of its revenues. Health economists estimate that a 20% increase in premiums leads to 4 million fewer jobs and a $2,000 decrease in workers’ wages.
- The current health care system keeps the United States from competing effectively in the global economy. The majority of our trading partners’ governments sponsor guaranteed coverage for their citizens, which means that employers in these nations spend half as much on health care yet have a healthy, insured workforce. In order to compete, U.S. businesses pass those costs on to consumers, which make American-made goods less competitive (e.g., health care costs add $1,500 to the price tag of each GM car.)
- Leaving millions of Americans uninsured costs the American economy billions in lost productivity. The Institute of Medicine estimated in 2003 that the broken health care system costs the American economy $65 billion per year, or $1,645 per uninsured worker. The New American Foundation’s estimates suggest that today the cost of lost productivity is $100 billion. This decreased productivity slows economic growth.
- Even workers with health insurance are less productive due to our patchwork health insurance system. Many Americans are "locked" in their current jobs because they need to maintain their existing health insurance. this means that workers’ skills are not put to their best use. Some experts project that job-lock reduces workers’ voluntary mobility by at least 25%. Health reform would free these workers to move into the jobs where they are most productive, which will spur economic growth.
- Effective health insurance reform will jumpstart American entrepreneurship and small businesses. Some 55% of small businesses do not offer health insurance to their workers because they simply cannot afford it, according to the National Federation of Independent Businesses. This may affect their ability to recruit the best workers, which dampens these businesses’ productivity. Indeed, small businesses’ health insurance costs relative to payroll increased by 30% between 2000 and 2005. By making entrepreneurship more affordable, health care reform will boost economic growth.
Health reform will ease the increasing burden of health care costs on federal and state budgets.
- Health care costs constitute a large and growing portion of public and private expenditures. If we fail to control health care costs, federal spending on Medicare and Medicaid as a percent of GDP will double by 2030, growing from 4% to 8% of GDP. Expanding health care coverage in order to increase access to preventive care is one promising way to cut federal health care spending: $.96 of every Medicare dollar is spent on the treatment of chronic, predominantly preventable disease. Guaranteed and affordable access to preventive care could erase the majority of Medicare’s costs. In the long run, healthier Americans mean a healthier fiscal balance.
- Escalating health insurance costs are putting an enormous burden on state budgets. Medicaid and S-CHIP serve as safety nets for growing numbers of working poor American families who are without health insurance. Rough economic times are further swelling the ranks of those eligible for these safety nets. As a result, states’ health care costs rose by over 5% in the last year, and the Kaiser Commission on Medicaid and the Uninsured projects states’ costs to increase more sharply in the coming years. Currently, burdens on state budgets are so severe that dozens of states are considering deep cuts in health care-related services. Systemic reforms that address both cost and coverage could remove a major burden from states’ fiscal ledgers.
Health reform will reduce burdens on American families and help spur economic growth.
- Workers are spending more to cover healthcare costs. In 2008, the average annual premium for a family of four was $12,680. The average employee contribution to employer-provided health insurance increased by more than 143% since 2000, and average out-of-pocket costs rose 115% during the same period. The situation is only going to worsen; a survey showed that 59% of businesses intend to increase employees’ deductibles, copayments, and out-of-pocket spending limits next year.
- A broken health care system means a medical emergency quickly becomes an economic crisis for working families. When medical misfortune strikes, the typical American family faces enormous economic strain. More than 45 million non-elderly Americans (17%) do not have health insurance and must bear the full cost of a medical emergency. The current economic downturn means these numbers are likely to grow; experts project that a 1% increase in unemployment leads to 1.1 Americans becoming uninsured. And medical bills lead to further strains on family budgets: Two-thirds (65%) of those with unpaid medical bills report problems paying for other necessities. Medical debtors report problems making mortgage and rent payments and paying for utilities; nearly half (44%) said they had used up all or most of their savings to pay their medical bills, and one-fifth (20%) said they had large credit card bills or taken out loans against their homes. Without systemic health reform, more Americans are just one illness away from economic collapse.
- Quality health care improves workers’ health, boosting overall productivity and family incomes. Increased medical costs are hurting health outcomes—half of Americans report that they or a family member has skipped taking prescribed medicines or postponed or cut medical care due to costs. Foregoing treatments leads to worsening health and higher incidence of illness. According to the Centers for Disease Control and Prevention, preventable illness makes up 50% of the burden of illness in the United States. Productivity losses attributable to seven common chronic (and largely preventable or manageable) diseases totaled $1 trillion in 2003. Guaranteed, affordable health insurance coverage would ensure more of these workers receive preventive care and avoid illness altogether. Millions more would be able to lead healthier, more productive lives—which means less time lost from work, reduced treatment costs for employers, and fewer lost wages for workers.
- Reform will save money for both employers and workers, which will help to stimulate the economy. Health care reforms that combine guaranteed coverage with cost-saving, quality-enhancing elements could reduce employers’ health care costs by nearly $87 billion. Lower health care costs will allow employers to put more of the cost of compensation toward workers’ wages and pensions. And reduced costs for workers will enable them to put more money back into other parts of the economy.
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ASA Congressional Fellow Elisabeth Jacobs is serving on the Senate Committee on Health, Education, Labor and Pensions (HELP), which is chaired by Senator Edward Kennedy (D-MA).