Friday, August 28, 2009

Is fixing health care good for business?

Gary Locke, the US Secretary of Commerce, says the answer is yes. Here are excerpts from his op-ed in today's Wall Street Journal:

There has been a lot of talk about the 47 million Americans who do not have health insurance. But health-care reform is just as important to the majority of Americans who have health insurance now. Absent reform, the price of an average family's insurance will nearly double over the next decade—to $25,000 from $13,000.


In 1960, U.S. firms spent 1.2% of their payroll on health insurance. In 2006, they spent 9.9%. Costs rising at this rate are unsustainable and put U.S. firms at a competitive disadvantage to foreign companies that almost universally have lighter health-care burdens. It also destroys U.S. jobs.


These escalating costs have been passed on to the middle class in the form of higher prices and flat wages. Money that would have gone to raises has instead been spent on health-care premiums that have doubled over the past nine years.

The cost pressure is particularly acute for small businesses, which, on average, pay 18% more per worker than large firms for the same health-insurance policies. They pay more because they have a smaller risk pool and have to absorb higher broker fees and administrative costs per worker. As a result, many small businesses don't offer health coverage. Just 49% of firms with three to nine workers and 78% of firms with 10 to 24 workers offered health plans in 2008, while 99% of firms with over 200 workers did.


The pernicious price of runaway health-care costs also has a dampening effect on entrepreneurship.

How many aspiring owners of businesses are locked in jobs they don't like for fear that striking out on their own would cause them to lose their health insurance? The Small Business Majority, a national advocacy group, estimates there are as many as 1.6 million.

In the short term, health-care costs pose a major problem for companies and their employees. In the medium and long-term, these costs pose serious challenges to our economy. This year, health-care expenditures are expected to account for about 18% of our GDP. Without reform, that share is projected to rise to 28% in 2030 and to 34% in 2040. When one out of every three dollars is spent on health care, we will face a situation in which companies can no longer provide insurance. At the same time, if we don't address rising federal health-care costs, we will likely face either much higher taxes or unsustainable deficits that could spike interest rates and threaten capital formation.

Although I have a lot of concerns about the exact form of health care reform, I strongly endorse Secretary Locke's overall message. Doing nothing at all is a sure prescription for disaster.

The percentage of GDP spent on health care in this country has been rising, rising, rising steadily and insidiously over time. Like lobsters in a pot whose temperature has been gradually rising, most of us have not paid a lot of attention to this increase on a day-to-day basis. But the demographic reality of aging baby boomers is about to bring the pot to a furiously rolling boil, and--I repeat--the consequences of doing nothing at all is a prescription for disaster.

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