A Healthy Economy

This month’s conventional wisdom—the seeming consensus of the pundits and other self-important folks who make their livings by pontificating on such matters—is that the Obama Administration should forget about reforming health insurance and concentrate on jobs and the deficit.

The problem is, these issues are related. You can’t reduce the deficit unless you create jobs, and you can’t create jobs unless you fix health insurance.

Job creation reduces government spending, because we pay less for unemployment and other social welfare costs. It also increases government income, because more people pay taxes. 

The cost of health insurance is the single largest drag on new job creation. The difference between what it costs an employer to create a new position and the amount the employee actually receives is the employment “wedge.” As health insurance premiums escalate, the wedge grows larger, and inhibits hiring additional workers. In good economic times, that is troubling; in times like these, it can be catastrophic.

Our costly, patchwork approach to healthcare distorts the operation of markets and inhibits the economic development needed for deficit reduction. For example, not too long ago, Toyota was looking for a site for a new factory in North America. Several southern states were offering tax abatements, infrastructure improvements and other incentives worth millions. Toyota went to Canada, which wasn’t offering anything. The company explained that in Canada, they didn’t need to provide healthcare. Smaller companies—the real engines of economic growth and job creation—are increasingly unable to offer health insurance, putting them at a competitive disadvantage when they try to hire good employees. Over fifty percent of personal bankruptcies are attributable to medical bills, and those bankruptcies cost businesses and taxpayers millions.

Opponents evidently believe reform will add to the deficit because they think taxpayers will bear more of the costs of care. They don’t believe Congressional Budget Office projections that reform will actually reduce the deficit. But governments at all levels currently expend huge amounts for healthcare, through Medicaid, Medicare and other federally required programs, through health care research grants,  through insurance for public employees (Universities, police, public school teachers, state and municipal workers, etc.), and through support for public hospitals.

By most estimates, American taxpayers already foot the bill for over 60% of American health care. We just do it in the least efficient, most wasteful way imaginable. (In single-payer countries, by contrast, governments pay an average of 70% of all health costs.) The brutal truth is, America already has “socialized” medicine. We have socialized our medical care through the private, for-profit insurance industry. As a result, we have the worst of both worlds. We pay more than twice as much per capita as any other country for a system that is regularly ranked thirty-sixth or thirty-seventh in the world.

The bill that is pending in Congress is far from ideal. If it passes, it will need plenty of tweaking and amending in the future. But it’s a start. And make no mistake: we cannot tame the deficit or create jobs until we fix healthcare.

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One thought on “A Healthy Economy

  1. Well written article. I agree on the cycle effect in that fixing health care will impact the deficit and hopefully generate jobs. The new concept of the job market must first be understood; in that a job position may be lost today, but generate three new ones tomorrow but in a different capacity and to the untrained eye may be considered non-related. For example, with the new offshore drilling measures by Pres. Obama, the guys working on oil tankers that bring oil into this country may need a commercial drivers license to transport oil acroos state-lines

    Like

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