Health care reform would aid economy

Health care reform is more than a social imperative – it is an economic necessity. A new study by the President’s Council of Economic Advisers demonstrates that the current American health care system is on an unsustainable path. Without health care reform, American workers and families will continue to experience eroding health care benefits and stagnating wages caused by the pressure of escalating health insurance premiums. And without reform, rising spending on Medicare and Medicaid will lead to massive and unsustainable federal budget deficits.

Years of diagnosis on the ills of the U.S. health system have produced no cure. Health care expenditures in this country are currently 18 percent of gross domestic product (GDP) and, without change, will keep rising, until they account for nearly one-third of our total output by 2040. Even with this exorbitant bill, about 46 million Americans lack health insurance coverage today, and this number is predicted to rise to 72 million over the next three decades.

The president has articulated his goal of health care reform that slows the growth rate of health care costs, preserves choice of doctors and plans, and assures quality, affordable health care for all Americans. Over the long term, heeding President Obama’s call for change will lead to faster economic growth, higher take-home pay for workers, greater employment opportunities, a more level playing field between small and large businesses, and deficit control.

The administration and health industry leaders have pledged to work toward a goal of reducing health care cost growth by 1.5 percentage points per year. And, the Administration is committed to working toward ensuring that all Americans have access to health insurance coverage. If we can achieve and sustain this ambitious rate of cost containment and expand coverage, the results would be significant. For example:

– Impact on income: For a typical family of four, income would be higher than it otherwise would have been by approximately $2,600 in 2020 (in 2009 dollars) and by nearly $10,000 in 2030.

– Impact on GDP: Real GDP would be 2 percent higher in 2020 than it otherwise would have been, nearly 8 percent higher in 2030, and nearly 16 percent higher in 2040. The key source of this improved growth would be increased efficiency in the health sector and increased investment stimulated by a reduction in the government budget deficit.

– Impact on the budget deficit: CEA estimates that slowing the growth of health care costs by 1.5 percentage points would reduce the budget deficit in 2030 by 3 percent of GDP relative to the no-reform baseline.

– Impact on unemployment: Controlling health care cost growth would allow lower unemployment in the short and medium run, without putting pressure on inflation. Employment could be 500,000 higher for a number of years.

– Improvements in economic well-being from greater coverage: We use the best estimates available to quantify the costs and benefits of expanding coverage. Among the benefits we attempt to put a dollar value on are the increased life expectancy that results from access to health care and the decreased chance of financial ruin from high medical bills. We find that the net benefits – the benefits minus the costs – are on the order of $100 billion each year.

– Labor market improvements: By increasing access to insurance coverage and removing limitations on coverage for people with pre-existing conditions, health care reform is likely to increase the labor supply and make it easier for workers to switch jobs and feel confident of their coverage no matter what happens. It will also improve the competitiveness of small businesses by lessening the disadvantage they face in competing with large firms that have lower insurance costs.

As we know from past failures, the process of achieving comprehensive health care reform will not be easy. Controlling cost growth cannot just be a lofty goal, it must become a hard reality. To do this, we will need reforms that emphasize quality over quantity, patient involvement, and reward prevention and wellness. The evidence suggests that up to 30 percent of health care costs, or about 5 percent of GDP, could be saved without compromising health outcomes in the United States.

The bottom line of the CEA report is that doing health care reform right is incredibly important. If we can put in place reforms that slow cost growth significantly and expand coverage, the benefits to American families, firms, and government budgets would be enormous.

To put it simply, good health care reform is good economic policy.