HEALTHCARE REFORM NEEDED MORE THAN EVER

HEALTH CARE
Economic Crisis Demands Health Care Reform

The economic crisis has led some analysts to suggest that now is not the time for comprehensive health care reform. They argue that rising economic instability, burgeoning budget deficits, and other national priorities should push health care reform to the back-burner. But policy makers who ignore the link between economic and health care policies and divorce the health care crisis from the current financial meltdown run the risk of further eroding America's economy. In his recent "Call to Action," Sen. Max Baucus (D-MT) wrote that "the link between health care costs and the economy is incontrovertible. Health care reform is not a distraction from addressing our economic challenges; health care reform is an essential part of restoring America's overall economy and the finances of our working families." Indeed, 15.3 percent of Americans lack health insurance, 23 percent forgo necessary care every year due to cost, and "22,000 uninsured adults die prematurely each year as a direct result of lacking access to care." Growing health care costs are straining businesses and workers alike. Between 1999 and 2008, "premiums have increased 117 percent for families and individuals and 119 percent for employers." As a recent New America Foundation study concluded, "We must reform our struggling health system not in spite of our economic crisis, but rather because of the impact health care has on the American economy. The economic and social impact of inaction is high and it will only rise over time." Ultimately, Congress cannot help American families or address the economic woes "in a lasting, meaningful way without health care reform" that includes an upfront investment in coverage and health care infrastructure.

AUTOMAKERS' HEALTH CARE BURDEN: The growing burden of providing health care benefits has contributed significantly to U.S. automakers' dwindling profits. Health care costs add $1,525 to the price tag of every General Motors (GM) vehicle; the company spent $4.6 billion on health care in 2007, more than it paid for steel. According to data compiled by GM's director of health care policy, "every second of every day, GM pays for a medical procedure; every two seconds, it pays for a prescription." In fact, despite "fierce competition among states hoping to attract a new Toyota assembly plant," in June 2005, Toyota chose to locate the new plant in Ontario, Canada. As Nobel-Prize winning economist Paul Krugman observed, Canada's national health insurance system was a "big selling point," saving "auto manufacturers large sums in benefit payments compared with their costs in the United States." In America, the economics have become so upside-down that Warren Buffett calls GM "a health and benefits company with an auto company attached." But as American automakers are grappling with soaring health care costs, their foreign competitors aren't burdened with the responsibility of providing health care. For instance, Toyota, which benefits from Japan's universal health system and cost-sharing and containment mechanisms, "paid $1,400 less per vehicle on health care" and makes $2,400 more per car than American manufacturers. In Japan, the government, employers, and individuals all share in the responsibility of providing health care, while American companies are left at a competitive disadvantage.

HEALTH CARE COSTS BANKRUPTING STATES: As the economy sours and the unemployment rate increases, states are struggling to finance their health care programs. As a recent report from the Government Accountability Office (GAO) explains, "[E]conomic downturns result in rising unemployment, which can lead to increases in the number of individuals who are eligible for Medicaid coverage, and in declining tax revenues, which can lead to less available revenue with which to fund coverage of additional enrollees." A 1 percent expansion in unemployment results in 1 million more people enrolling in Medicaid and SCHIP and increases state spending by $1.4 billion. In fact, growing health costs are now "the primary driver of the fiscal challenges facing the state and local sector over the long term." At least 27 states are facing budget gaps and most are simultaneously experiencing an increase in Medicaid enrollment. A survey by the Kaiser Foundation concluded that "Medicaid enrollment across the country grew 2.1 percent in fiscal year 2008" and "states expect to see even larger increases in Medicaid enrollment and spending" in fiscal year 2009. As CAPAF Senior Fellow Gene Sperling points out, increasing the percentage the federal government reimburses states for Medicaid expenditures allows states to increase Medicaid enrollment without requiring other contractionary policies and would generate millions in business activity. Similarly, expanding SCHIP would put thousands of people to work at a time of economic weakness and "lay the foundation and infrastructure needed for achievement of our moral imperative to ensure universal coverage for all children -- and hopefully for all Americans of any age."

CONSEQUENCES OF INACTION: Given the burden of growing health care costs on businesses and individuals, moving health care reform to the back-burner will only exacerbate the current economic downturn. In fact, according to a new report from the New America Foundation, "the economic cost of failing to fix our broken health care system is greater than the upfront expense of comprehensive health reform." In fact, if policy makers fail to act now, health care costs will become less affordable "for more and more American families every day," the report found. By 2017, "health care expenditures are expected to consume nearly 20 percent of the GDP" and by 2016, the cost of the "average employer-sponsored health insurance plan (ESI) for a family will reach $24,000," forcing "at least half of American households" to spend "more than 45 percent of their income to buy health insurance." As National Institutes of Health bioethicist Ezekiel Emanuel points out, "[H]ealth care costs are the long-term driving force in federal and state budgets." Health care spending makes up "$1 out of every $6 in the economy, dwarfing automobiles and all other economic segments" and represents the "single most important factor influencing the Federal Government's long-term fiscal balance." "Everything is affected by health policy, and every decision should be examined for its impact on health care reform," Emanuel concludes.

-americanprogressaction.org