Failure To Pass Health Care Reform Dangerous To Economy

During his press conference last night, Barack Obama described why the status quo is not a viable option:

If somebody told you that there is a plan out there that is guaranteed to double your health-care costs over the next 10 years, that’s guaranteed to result in more Americans losing their health care, and that is by far the biggest contributor to our federal deficit, I think most people would be opposed to that. Well, that’s the status quo. That’s what we have right now. So if we don’t change, we can’t expect a different result.

And that’s why I think this is so important — not only for those families out there who are struggling and who need some protection from abuses in the insurance industry or need some protection from skyrocketing costs, but it’s also important for our economy.

And by the way, it’s important for families’ wages and incomes.

One of the things that doesn’t get talked about is the fact that when premiums are going up, and the costs to employers are going up, that’s money that could be going into people’s wages and incomes. And over the last decade, we basically saw middle-class families; their incomes and wages flatlined.

BusinessWeek has reported on a survey which shows that Obama is right:

In a first-of-its-kind study, the non-profit Rand Corp linked the rapid growth in U.S. health care costs to job losses and lower output. The study, published online by the journal Health Services Research, gives weight to President Barack Obama’s dire warnings about the impact of rising costs if Congress does not enact health care reform.

The Rand researchers examined the economic performance of 38 industries from 1987 through 2005, in an attempt to assess the economic impact of “excess” growth in health care costs on U.S. industries. Excess growth is defined as the increase in health care costs that exceeds the overall growth of the nation’s GDP—a yearly occurrence in the U.S. The team compared changes in employment, economic output and the value added to the GDP product for industries that provide health benefits to most workers to those where few workers have job-based health insurance.

After adjusting for other factors, industries that provide insurance had significantly less employment growth than industries where health benefits were not common. Industries with a larger percentage of workers receiving employer-sponsored health insurance also showed lower growth in their contribution to the GDP.

For example, the study estimated that a 10% increase in excess health care costs would reduce employment by about 0.24 percent in the motor vehicles industry, where 80% of workers are covered by employers. The retail industry, however, where only one third of workers are covered, saw only a 0.13% percent drop in employment. Economy-wide, a 10% increase in excess health care costs growth would result in about 120,800 fewer jobs, $28 billion in lost revenues, and $14 billion in lost GDP value.

Republicans claim that health care reform would be harmful to the economy. Data such as this demonstrates that it is sticking with the status quo which is actually more harmful to the economy.

Besides being harmful to the economy, continuing with the status quo will mean additional millions who will lose their insurance because of losing their job, changing jobs, or developing an expensive illness which leads to their insurance dropping them. The current proposals might not be exactly what I would prefer, but sticking with the status quo would be far worse than any problems in the proposed plans.

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  1. 1
    Fritz says:

    Is insurance company overhead really the main factor that keeps jacking up the cost of health care?   It seems more likely to me that costs are third-partied and everyone who can insist on it wants the latest best most-expensive treatment — so added technology drives up costs rather than increasing efficiency.  If I am right in that, it is unclear to me how a different third party payer is going to chop health care costs — the drivers are the same.  Unless, of course, the government can mandate that people not get the latest best most-expensive treatments (or at least have to pay for much of it).
    What am I missing in that analysis?

  2. 2
    Mike b.t.r.m. says:

    I know that you know were I’m coming from on this next question, but let me ask it anyway.  How much of the cost problem is related to malpractice insurance and lawsuits?

  3. 3
    Ron Chusid says:


    It isn’t even necessarily a different third party payer. Most likely a tremendous number of people will stick with their current insurance plans.

    There are cost saving measures being proposed which will help but, as I’ve noted in other posts, they will not make as big a difference as the Obama administration has claimed. There are ways to reduce use of wasteful tests such as doing more comparative effectiveness research and increaseing the use of primary care physicians as opposed to subspecialists.  Better information technology will also help reduce duplication of tests.

  4. 4
    Ron Chusid says:


    Malpractice results in a small percentage of health care costs. Eliminating the problem will not solve the problem as many right wing sources claim. However it is still a source of wasted money and we need to go after such savings. It is far better to save money wasted on malpractice premiums and defensive medicine than to impose other restrictions. After all, only the trial lawyers (and the handful who really win money with frivolous suits) will really be  impacted financially by reducing this waste.


  5. 5
    Fritz says:

    Ron, if the current legislative proposals will not do much to reduce costs, then how will they help the core finding of the Business Week study — that companies that provide health coverage fare worse in the marketplace?

  6. 6
    Ron Chusid says:

    At least they do something and reduce the problem over time, even if they don’t do enough to solve the problem.

    The key thing is that it contradicts the conservative arguments that health care reform is harmful by concentrating on the negative aspects of any proposal while ignoring the negative aspects of continuing with the status quo.

  7. 7
    Fritz says:

    It seems to me that one criticism of the plan is dead-on and explains where some of the “savings” come from.  The legislation forces young people to buy a healthcare plan (which is good because it’s not like they can self-insure for catastrophes) but also requires insurers to not charge them as low a rate as young healthy people should get.  So young people are required to put money into the system and not get it back in order to defray the costs of the rest of us.

  8. 8
    Ron Chusid says:

    If that is the case they would still “get it back” in a sense as they would benefit as they age from younger healthier people expanding the risk pool.

  9. 9
    Fritz says:

    At least it makes a bit more sense now.  Since you say that purging the insurance companies from “we dont cover that” isn’t going to save all that much, I was wondering where the pots of money were coming from.  Taxing the young healthy farts to pay for their elders answers that question nicely.  And they can stay off my lawn while they are at it.

  10. 10
    Ron Chusid says:

    There are also real sources of saving money. The problem is that it will be necessary for the government to spend more money before we see meaningful savings. Obama does ignore that aspect. (On the other hand, Bush ignored the costs of his Medicare D plan and even threatened to fire people working for Medicare if they testified about the actual cost. This looks like a bipartisan problem.)

  11. 11
    Eclectic Radical says:

    “I know that you know were I’m coming from on this next question, but let me ask it anyway.  How much of the cost problem is related to malpractice insurance and lawsuits?”
    “Malpractice results in a small percentage of health care costs. Eliminating the problem will not solve the problem as many right wing sources claim. However it is still a source of wasted money and we need to go after such savings.”
    I am not a big fan of tort reform. Cutting down the number of ‘frivolous lawsuits’ is certainly a good idea, and it certainly would be great if we could stop people with no grounds to sue from suing. The problem is that tort reform always appears to end up targetting lawyers who provide service to those who cannot afford to pay up front (and contingent fees actually incentivize a lawyer to only accept cases that are NOT frivolous, because he only gets paid if he wins and has to pay all the court costs if he loses), make it harder for legitimate suits to be lodged as much as ‘frivolous’ suits, or both. Americans are certainly far too eager to settle disputes in court these days, on the notion that somehow there is easy money to be found that way, but we can’t solve a cultural problem like that by limiting lawsuits anymore than we can solve drug addiction by prohibiting drugs.
    I was still in California when a lobby consisting of insurance, pharmaceutical, and utility companies attempted to pass a ban on contingent fee lawsuits and class action lawsuitsd through a pair of  ballot measures. Very specific examples of ‘frivolous’ suits were named in the literature.
    They included a class action suit against the makers of Halcyon (some people may remember that one) for failing to warn the public about dangerous side effects (big win for the plaintiffs and criminal charges against a couple of execs for burying reports), lawsuits against PG&E for giving whole towns in the California desert cancer by dumping toxic chemicals into their groundwater under false pretenses (some of you may have seen the movie), suits against the makers of Phen-Phen and Redux for not issuing proper warnings about the risk of fatal heart attack, suits against medical provider Pacificare for breach of legal contract for voiding the health care of AIDS patients upon diagnosis, and other equally ‘frivolous’ undertakings.
    The problem with tort reform is that, to a big corporation, any suit against them is ‘frivolous’ by default. Because someone is suing them. It distracts them from the business of hand, provides a major nuisance to their legal department, and makes them address the possibility that actions have consequence. This is a serious waste of their time and money, particularly since they ‘do so much good in the world and their communities.’
    Now, certainly, there are areas where qualifications for legal action may need adjustment. But it’s something requiring a degree of delicacy which the people advocating tort reform are generally not interested in applying. The majority of the current backers of tort reform believe that any lawsuit against a corporation is frivolous.
    It’s opponents have a strong case that any restriction of legal redress that risks barring access to the legal system to individuals or groups with legitimate complaints is far more dangerous than the cost of ‘frivolous’ lawsuits.
    If someone feels screwed, it’s not going to be frivolous to them.

  12. 12
    Leslie Parsley says:

    “The current proposals might not be exactly what I would prefer, but sticking with the status quo would be far worse than any problems in the proposed plans.”

    I agree with you. While it may not be the panacea we would hope for you have to start somewhere. Any kind of health care reform seems to cause a knee jerk reaction against it. Maybe I’ve missed it but I don’t see the Republicans coming up with any kind of alternative plan, viable or otherwise.

  13. 13
    Eclectic Radical says:

    “Maybe I’ve missed it but I don’t see the Republicans coming up with any kind of alternative plan, viable or otherwise.”
    The Republicans do have a plan. I’ve written about this little gem on my own blog. It’s biggest Senatorial pusher is  Judd Gregg, the guy who screwed the President as thoroughly as possible over the position of Secretary of Commerce. Now, one just has to look it over and one can see the obvious reasons a ‘fringe socialist’ like me would oppose it. I’m thinking that most people on the ‘mainstream’ can find reasons not to like it as well.
    I find it all kinds of amusing that the only people actually advocating rationed care are the people yelling at the top of their lungs that rationed care is the inevitable result of government health care. They want to prove their own point by rationing the government health care that exists now.
    I have begun to think that is the only real way to look at the Republican claims of a dystopian future of rationed care and queue lines if health care reform passes. They are not really saying that liberal health care reform will automatically lead to queues and rationed care. They are warning us that, if a public health option is enacted, they will do their best to force rationing and queues on its consumers.

  14. 14
    Leslie Parsley says:

    At the risk of getting a frown from Ron, I just posted an article where a Brit and a Canadian dispute Republican claims that their systems are fraught with problems. Even though Ron is gone for a few days, I know he is watching us. ; ) 

  15. 15
    Eclectic Radical says:

    I read it, I check your blog fairly regularly, as you may have noticed from all the smug, self-righteous, and arrogant comments I make sharing my own opinions. 😉
    Indeed, I’ve got you on my ‘required reading’ list now and noticed you had me linked as well the other day. 🙂

  16. 16
    Leslie Parsley says:

    Thank you – that makes three. Anyway, since this is Ron’s blog, I think this conversation needs to move elsewhere.

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