Overhauling health care could boost the economy - Pacific Research Institute

Overhauling health care could boost the economy

There are plenty of reasons to overhaul our creaky health care system, ranging from its status as the most expensive system in the world to its failure to provide for the health of millions of our fellow citizens.

But several recent studies suggest that there’s one more reason for reform: economic stimulus.

In the past several weeks, studies have suggested that health care reform could aid the economy by creating higher-paying jobs, motivating investment and cutting costs for companies.

Although the studies differ on their solutions – ranging from cutting taxes to creating a single-payer system – they agree that an overhauled system could be a vibrant economic engine.

One study – funded by the California Nurses Association – says that shifting more Americans onto a federally based health care system could create several hundred thousand high-paying health care jobs and could lower individual medical and insurance costs, which would free up money to spend in the economy.

Another study – by the Progressive Policy Institute, a quasi-liberal think tank in Washington, D.C. – says that greater coordination between competing health care companies would create $700 billion worth of cost savings, which could work as a stimulus if that money were pumped back into the broader economy.

And a third study – by the conservative Pacific Research Institute in San Francisco – suggests that more competition would help lower medical costs and create more employment. In addition, the study points to how changes in tax law could be used to achieve similar savings.

Put the proposals together and they seem to suggest that health care reform would be a better growth engine than the road-building projects now being considered as the way to jolt us out of our economic doldrums.

Which is something President Barack Obama and Gov. Arnold Schwarzenegger might want to keep in mind as they try to figure out how to stimulate economic growth.

“It’s a no-brainer,” said Geri Jenkins, a registered nurse at the UCSD Medical Center and co-president of the California Nurses Association/National Nurses Organizing Committee. “Creating good-paying jobs allows people to spend more money. It can be a huge economic stimulus.”

Currently, the United States has the most expensive health care system in the industrialized world – far more expensive than in Western Europe, Canada and Japan, which offer universal coverage through national health care plans.

Before the recent rise in foreclosures, health care bills were the leading cause of personal bankruptcies in the country. Over the past 30 years, health care bills have outpaced the inflation rate by an average of 2 percent per year.

In 2007, Americans spent $2.3 trillion on health care – more than they spent on food, according to AARP. Health insurance premiums that year rose twice as fast as inflation.

This spending has been a drag on the economy.

“The more money that businesses spend on health care, the less they spend on hiring workers and making other investments,” said David Kendall, a health care specialist at the Progressive Policy Institute.

Yet despite its drawbacks and expenses, health care has been one of the few bright lights in a job market that has been shattered by the continuing repercussions of the global financial crisis. Even as California lurches toward double-digit jobless rates, health care employment has risen steadily.

Over the past year, California has created roughly 30,000 health care jobs, including 1,400 in San Diego County – 800 in hospitals, 400 in nursing and residential care facilities, and 200 in ambulatory care facilities.

As the baby boomers age, demand for health care services will significantly increase. But health care faces a double whammy: Cash-strapped companies are cutting their contributions to insurance policies, while state and local governments are paring their support of health services.

Schwarzenegger’s latest budget proposal includes plans to reduce MediCal spending by nearly $720 million through 2010, in part by eliminating dental coverage for adults and raising requirements for MediCal applicants.

“Historically, when you cut $1 out of the state budget, you lose a federal dollar as well, so that every dollar that’s cut means $2 not going to nurses, doctors or hospitals, as well as reduction of money coming into the California economy,” said Jean Ross, who heads the California Budget Project.

On the other hand, Obama has pledged to make federal health care policy changes a top priority. Although his plan remains largely undefined, Congress is including billions of dollars in health care spending in its economic stimulus program – including $87 billion to reimburse the states for their health care spending.

To qualify for that aid, state governments must not reduce their support for medical coverage from its level of July 2008. That could forestall Schwarzenegger’s plans to cut the budget, since it would put the state at risk of losing $11 billion in federal funding, according to California Budget Project estimates.

But health care is too important a part of the economy – and too important a part of our wallet – to depend on emergency bailouts from Congress.

So what can we do to keep the health care engine running? Here are details from the recent studies:

Greater federal involvement. The California Nurses Association study suggests that if the United States shifts to a single-payer program – putting all Americans onto a Medicare-like system – it could create 734,000 health care jobs that would generate $44 billion in direct tax revenue and as much as $317 billion in indirect revenue at a cost of $63 billion for the taxpayers.

Although Congress would likely balk at such a radical measure, the study suggests that there are other moves – such as shifting all the 47 million currently uninsured Americans onto Medicare – that could also achieve significant savings. That proposal, at a cost to the taxpayers of $44 billion, would create 287,000 health care jobs, producing $36.5 billion in payrolls and $16.5 billion in new tax revenue, according to the study.

Greater coordination between existing health care companies. The Progressive Policy Institute study estimates that the health care system could save as much as $700 billion through simple steps such as ensuring that health care records move efficiently from doctor to doctor, providing monetary incentives to doctors to practice higher-quality work instead of higher-volume work, and introducing the concept of “continuous quality improvement,” which helped Toyota revolutionize the auto industry.

Fewer taxes. The Pacific Research Institute study defends many of the elements of the current system. The author, Sally Pipes, argues that many of the system’s flaws have to do with too much government intervention. But one area where Pipes might find herself in agreement with a more nationalized or better-coordinated system is her suggestion that tax rates be altered to make health care costs less expensive for the consumer – for instance, by allowing people to buy insurance with pretax dollars.

Whatever happens with health care over the next couple of months, it’s likely that all three of these suggestions, as well as dozens of others, will be reflected in the national debate over how to get our health care system – and our economy – moving in the right direction.

Dean Calbreath: (619) 293-1891;

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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