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Health Policy Program

The Economic Case for Reform

Calculator and Stethoscope

America cannot afford our current health system any longer.

Rising health care costs threaten the economic future of employers, workers, governments, and American households.

More and more Americans find quality health care coverage simply unaffordable. The share of median family income spent on family health insurance jumped from 7.3 percent in 1987 to 16.8 percent in 2006. Worse yet, the full cost of family employer-sponsored health insurance will be more than $24,000 in 2016. This means half of American households would need to spend more than one-third of their income to buy health insurance for themselves and their families. These cost-to-income trajectories cannot be sustained.

We must reform our nation's health care system—not despite our economic crisis, but precisely because of the impact it has on U.S. workers and businesses. The income and productivity our economy loses every year because of the poor health and shorter lifespan of the uninsured is as much as and perhaps greater than the public cost of covering all Americans.

U.S. businesses and hard-working Americans are suffering. The employer health care burden makes it difficult for employers to compete in the 21st century global economy. Rising health care costs threaten the profitability of U.S. businesses, the stability of American jobs, and workers' wages. In addition, globalization makes it impossible for firms to shift health care costs into the prices of their goods. As a result, employers are reducing or eliminating health benefits and workers are paying a larger share of the bill.

The consequences stemming from a lack of health insurance only worsen during slow economic times. A 1 percentage point rise in the unemployment rate would increase Medicaid and SCHIP enrollment by 1 million and cause the number of uninsured to grow by 1.1 million. That change would increase total Medicaid and SCHIP costs by $3.4 billion, which includes $1.4 billion in state spending.

The insured have higher health care bills. Families across America pay a "hidden tax" to provide health care to the uninsured. When medical bills go unpaid, providers attempt to recoup the lost revenues by raising the rates for services delivered to the privately insured. As a result, insurers raise premiums. This vicious cycle inextricably links the uninsured to health care costs and by extension to premium rates.

Workers are less productive. The uninsured are more likely to be sick unnecessarily for long periods of time. Poor health decreases workplace productivity.

Health care costs jeopardize the financial stability of our government. Rising health care costs place increasing strain on state and local budgets and threaten the sustainability of the Medicare and Medicaid programs. Health care is consuming a greater and greater share of the federal budget. Over time, health care spending could endanger other vital spending priorities or continue to increase our federal deficits. Therefore, health care reform is inextricably linked to a more fiscally sustainable Medicare program and a sound federal budget.

The cost of health reform is small relative to the potential gain. While genuine reform will require new spending in the short run, the economic and social cost of inaction are high and they will only rise over time.

Required Reading

The Case for Health Reform
Policy Paper
February 20, 2009

The Cost of Doing Nothing
Policy Paper
November 13, 2008

Healthcare Costs Pinch Employers
Los Angeles Times
May 7, 2008

Employer Health Costs in a Global Economy
Policy Paper
May 6, 2008

The Cost of Failure
Policy Paper
March 25, 2008