Just about everyone agrees that health care in America is too expensive, and that something must be done to control the rising costs. Except for one group: hospitals and the unions representing hospital workers.
They believe that controlling health care costs will hurt the economy and increase unemployment. They point out that hospitals are among the largest employers in many communities and that, unlike other employers, they are adding jobs at a good clip.
But the truth is that bending the health care cost curve will actually spur the economy forward. According to the Council of Economic Advisers, reducing health care cost increases by just 1 percentage point every year would lead to a 4 percent increase in G.D.P. by 2030. In today’s dollars, that would mean an extra $600 billion for our economy and an extra $7,000 for the average family.
In some ways, it’s easy to sympathize with the hospitals’ worries: their concern is that competition in the new insurance exchanges and other changes catalyzed by the Affordable Care Act will result in lower premiums. To stay profitable, insurance companies will have to pressure hospitals to reduce their rates. And since 60 percent of an average hospital’s costs are labor, employees will be laid off and wages cut. At a time when hospital support jobs pay about 10 percent more and typically come with more generous benefits than comparable jobs in other industries, it’s understandable that health care employees are resistant.
But this line of reasoning is misguided. First, cost control is not the same thing as cost reduction. The financial goal of reforms like reducing hospital readmissions and hospital-acquired infections and encouraging competition among insurance companies is to stem the rate of growth in health care spending. We spent about $2.8 trillion on health care last year, and the system wastes approximately $700 billion annually, but no one is proposing that these expenditures decline to even $2.6 trillion. Cost control is simply about staving off the date when health care spending exceeds $4 trillion.
In addition, even if hospitals had to restructure their operations to deliver care more efficiently, it wouldn’t necessarily mean fewer health care workers over all — any decline in hospital jobs would probably mean an increase in other health-related jobs like home health aides.
Where the opponents of cost control really go wrong is on the macroeconomics. Layoffs in the health care industry would increase unemployment and lower wages, they argue, thereby reducing consumer spending and hurting the economy. But both liberal and conservative economists agree that ever rising health care spending is a huge drag on the economy. As one of the Heritage Foundation’s fellows wrote: “If Americans could attain the current level of health for a lower total cost, the resources saved could be used for some other beneficial purpose, and U.S. economic well-being would undoubtedly improve.”
There is a good parallel in the agriculture industry. The introduction of tractors with internal combustion engines in the early 20th century caused unemployment among farmworkers, but it also increased productivity and made food cheaper. In 1920, about 40 percent of an American family’s income went to purchasing food. Today the average family spends approximately 10 percent of its income on food, which means more disposable income to spend on other rewarding items — education, appliances, smartphones, computers — and more jobs in these industries.
Health care will follow a related path. Savings won’t just disappear. They’ll go into other purchases, often ones that are more valuable, like higher education or rapid transit, creating construction jobs while making our commutes easier. Small businesses, if they don’t have to cover ever increasing insurance costs, could instead pay higher wages and hire more workers. The estimated reduction in health care premiums because of the Affordable Care Act will mean that in 2019 average families will pay about $2,000 less than they would have without cost control, freeing up money for purchases or retirement.
Some people may argue that they would take a lower G.D.P. and slower growth if it meant that we were healthier. But this, too, is wrong. There is no link between how much we spend and how healthy we are. Many other countries, including Australia, France and Germany, spend less but perform better on many health care measures. It’s true even for different regions in the United States: there is no link between higher spending and better health.
It’s clear that, far from creating unemployment and hurting the economy, the more we can control health care costs, the more Americans will prosper. Ultimately, however, this debate should be irrelevant. Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.
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