Fixing Health Care: Good For American Business

Perhaps you have heard the horror stories about President Obama’s health care reform plans leading to a future of rationed care and bankrupt businesses

U.S. Commerce Secretary Gary Locke

Perhaps you have heard the horror stories about President Obama’s health care reform plans leading to a future of rationed care and bankrupt businesses and governments. Those claims, and many others like them, are flat wrong. The real horror story is not what might happen to American health care if reform is successful. It’s what’s already happening.

We all know about the 47 million uninsured Americans and the millions more that are underinsured. But, health reform is just as important to the majority of Americans who do have health insurance. Absent health-care reform, the price of an average family health insurance plan will nearly double over the next decade Û from $13,000 to $25,000.

No less troubling, or threatening to America’s future, are the stories I’m hearing from CEOs, entrepreneurs, and workers across the country. Spiraling health care costs are simply crushing American businesses, particularly the small businesses that are the source of so much of our economic vitality.

In 1960, U.S. firms spent 1.2 percent of their payroll on health insurance contributions. In 2006, they spent 9.9 percent. That arc is unsustainable. And, it’s putting U.S. firms at a competitive disadvantage compared to foreign companies that almost universally have lighter health-care cost burdens.

The upshot of the over eightfold cost increase has been lost jobs and slower growth for many American industries Û a fact confirmed last month by a first-of-its-kind study from the nonpartisan Rand Corporation. That survey of 37 industries from 1987 to 2005 estimated that a 10 percent increase in health care costs Û roughly the annual increase we’ve experienced the last few years Û would result in 120,800 fewer jobs across the economy, $28 billion in lost revenues, and $14 billion in lost GDP value. After controlling for other factors, sectors with the highest percentage of employer-sponsored health care, such as the motor vehicle industry, had much slower job growth than retail and other industries where employer health coverage was uncommon.

The pain of all these escalating pressures on America’s businesses has been passed on to the middle class in the form of higher prices for goods and services and wages that have been flat for a decade. Money that companies otherwise would have put towards raises has instead been diverted to pay for spiraling healthcare insurance premiums, which have doubled over the last nine years.

The negative impacts that rising health care costs have throughout our economy are magnified for small businesses, which pay on average 18 percent more per worker than large firms for the same health-insurance policy, due to high broker fees, fixed administrative costs, and a smaller risk pool. As a result, many small businesses are getting out of the health-coverage business altogether. In 2008, just 49 percent of firms with three to nine workers and 78 percent of firms with 10 to 24 workers offered their employees any type of health insurance, compared to 99 percent for firms with over 200 workers.

One can’t tell precisely how much health care costs are affecting the overall prosperity of America’s small businesses, but it’s certainly not helping. Through the third quarter of 2008, half of all private sector job losses occurred in companies with fewer than 20 employees.

Another intangible, but no less pernicious, cost of runaway health care expenses is their dampening effect on entrepreneurship. How many aspiring entrepreneurs 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 estimates the number could be as high as 1.6 million.

While today’s bottom-line health care costs are a major problem for U.S. companies and their employees now, even worse are the medium- to long-term implications of countrywide health care outlays. This year, health care expenditures are expected to equal approximately 18 percent of American GDP. Without major reform, that share is projected to rise to 28 percent in 2030 and to 34 percent in 2040.

A business environment where one out of every three dollars is spent on health care would be a disaster. We could face much higher taxes to pay for that care, especially with an aging population dependent on Medicare. Or, we would have unsustainable deficits that could spike interest rates and seriously threaten capital formation. Neither option is a future any of us wants to contemplate.

America’s health-care problems are no secret in Washington. Everyone knows exactly where our demographic and structural trends are leading us: worse health care and higher costs for employers, workers and governments.

But, America has a chance to avoid that fate. President Obama has articulated three broad criteria for any health-care reform: 1) reduce costs, 2) protect Americans’ choice of doctors and insurance plans, and 3) assure quality and affordable health care for any American who wants it.

The bills working through Congress are moving in the right direction; and, despite some setbacks, this nation is closer to fundamental health-care reform than we have ever been. We must keep moving forward. Today, we are in a twilight period, that precious moment before a problem becomes a crisis. What we do in the coming months will play a big role in determining America’s competitiveness and prosperity for decades to come.

There is a path towards a more sustainable and prosperous future for America’s businesses and our economy. It’s imperative that we take it Û the alternative is truly frightening.