The Council of Economic Advisers (CEA) has undertaken a comprehensive analysis of the economic impacts of health care reform. The report provides an overview of current economic impacts of health care in the United States and a forecast of where we are headed in the absence of reform; an analysis of inefficiencies and market failures in the current health care system; a discussion of the key components of health care reform; and an analysis of the economic effects of slowing health care cost growth and expanding coverage.
The findings in the report point to large economic impacts of genuine health care reform:
- We estimate that slowing the annual growth rate of health care costs by 1.5 percentage points would increase real gross domestic product (GDP), relative to the no-reform baseline, by over 2 percent in 2020 and nearby 8 percent in 2030.
- For a typical family of four, this implies that income in 2020 would be approximately $2,600 higher than it would have been without reform (in 2009 dollars), and that in 2030 it would be almost $10,000 higher. Under more conservative estimates of the reduction in the growth rate of health care costs, the income gains are smaller, but still substantial.
- Slowing the growth rate of health care costs will prevent disastrous increases in the Federal budget deficit.
- Slowing cost growth would lower the unemployment rate consistent with steady inflation by approximately one-quarter of a percentage point for a number of years. The beneficial impact on employment in the short and medium run (relative to the no-reform baseline) is estimated to be approximately 500,000 each year that the effect is felt.
- Expanding health insurance coverage to the uninsured would increase net economic well-being by roughly $100 billion a year, which is roughly two-thirds of a percent of GDP.
- Reform would likely increase labor supply, remove unnecessary barriers to job mobility, and help to “level the playing field” between large and small businesses.
Where we are and where we are headed
Health care expenditures in the United States are currently about 18 percent of GDP, and this share is projected to rise sharply. If health care costs continue to grow at historical rates, the share of GDP devoted to health care in the United States is projected to reach 34 percent by 2040. For households with employer-sponsored health insurance, this trend implies that a progressively smaller fraction of their total compensation will be in the form of take-home pay and a progressively larger fraction will take the form of employer-provided health insurance.
The rising share of health expenditures also has dire implications for government budgets. Almost half of current health care spending is covered by Federal, state, and local governments. If health care costs continue to grow at historical rates, Medicare and Medicaid spending (both Federal and state) will rise to nearly 15 percent of GDP in 2040. Of this increase, roughly one-quarter is estimated to be due to the aging of the population and other demographic effects, and three-quarters is due to rising health care costs.
Perhaps the most visible sign of the need for health care reform is the 46 million Americans currently without health insurance. CEA projections suggest that this number will rise to about 72 million in 2040 in the absence of reform. A key factor driving this trend is the tendency of small firms not to provide coverage due to the rising cost of health care.
(PHOTO CREDIT: Official White House Photo by Pete Souza)
Read full report from Council of Economic Advisers: The Economic Case For Health Care Reform
