Unsustainable healthcare costs drive down economic growth – makes up more than 18% of GDP

Rising healthcare costs hamper the ability of U.S. businesses to compete internationally. We at New America have estimated that U.S. manufacturing firms spend almost three times as much per worker per hour for healthcare as our most important foreign competitors--$2.38 versus $0.96. Healthcare costs drive employers to move jobs overseas, grow jobs outside of the United States, and limit the ability of firms to invest to improve productivity [and] compete more effectively in the future.¶ Many economists argue that employer premium contributions are perfectly offset by reduced wages, so how can health costs affect competitiveness? Traditional economics is grounded in long-run equilibrium, but recurrent and random premium growth prevents equilibrium from ever being reached. Workers’ strong preferences for nominal money wages [in other words, to be compensated in terms of money paid, rather than in terms of purchasing power or added benefits] preclude employers from lowering wages to absorb the entire "shock" of higher premiums within one year. A single large shock in premiums would be taken out of wage increases over a few years, but next year’s premium shock starts the multiyear cycle, again, every twelve months. So in fact, businesses do bear some of the cost of premium inflation, which is precisely why employers care so much more about it than most economists think they should.¶ "Health reform legislation now before Congress would begin to slow healthcare cost growth, the outcome employers need most. – Len Nichols¶ Analysis also shows that the U.S. economy loses as much as $207 billion annually because of the lost productivity stemming from the poor health and shorter lifespan of the uninsured. Employers notice the workplace productivity loss, which for a full-time worker equals four days a month in lost work time.¶ Health reform legislation now before Congress would begin to slow healthcare cost growth, the outcome employers need most. It would do so by conveying that business as usual--fee for service, "pay for volume"--is over, and by directly changing incentives for higher quality and more efficient care. In addition, investments in health information infrastructure and data on what treatments work best for what patients will benefit all payers--private and public alike.¶ Some say that we cannot afford health reform in the current economy. But the reality is that U.S. competitiveness cannot afford for us to fail, again.¶ Paul N. Van de Water, Senior Fellow, Center on Budget and Policy Priorities¶ Health reform that expands coverage to the uninsured while slowing the growth of healthcare costs is crucial for strengthening the U.S. economy. The soaring growth in healthcare costs is reducing the competitiveness of U.S. businesses, holding down wage growth as businesses shift more employee compensation to cover health insurance costs, and, more than anything else, driving federal budget deficits that are projected to explode in the coming decades.\