CEPR - Health Care Reform Is Needed Now More than Ever

"With the U.S. economy’s downward spiral still accelerating and the federal government looking at its largest budget deficits since World War II, some are saying that this is not the time to expand health care coverage to all Americans.

But this is exactly the time for the Obama administration to move boldly on its campaign promise to implement a universal health care system.

Obama wants spending that stimulates the economy in the short term, but he also wants to reduce the long-term deficit problem after the economy recovers. This is exactly what health care reform will do.

In the short run, health care spending, like other government spending on goods and services, creates jobs and generates income. This will help arrest the economy’s downward spiral.

With the collapse of private spending, the federal government must act as the consumer of last resort – hence the vital importance of the $787 billion stimulus package that Congress passed last week. Fortunately this package did contain at least some health care stimulus. In included $87 billion for Medicaid payments to the state governments, $25 billion towards helping unemployed workers extend their employment-based health insurance after being laid off, and $19 billion for health information technology.

But health care reform would do vastly more. President Obama has proposed a reform that would, while keeping the employer-based health insurance that covers most Americans, create a public health insurance system for the 46 million that do not have insurance. Large employers would be required to either pay into this system or provide their employees with insurance that is at least as good as the federal system. Individuals without insurance could buy into the public system, and the federal government would subsidize these payments so that they would be affordable for low-income households and those without ties to the labor force.

The White House estimates that their plan would cost $50-65 billion annually, but it would be better to spend much more than this, with more federal subsidies to employers to cover uninsured workers and improve existing coverage. As big as it may seem, the $787 billion stimulus bill passed by Congress amounts to less than 2.7 percent of GDP. This is not nearly enough to counteract our deep recession: the Congressional Budget Office estimates the output gap (i.e., how much output is below the economy’s potential) at $2.9 trillion over the next three years.

Besides saving thousands of lives by providing health care to the uninsured, and supplementing the fiscal stimulus, health care reform has another huge advantage: it can drastically reduce future federal budget deficits. The vast majority of our government’s long-term shortfall is due to exploding health care costs in the private sector. These spill over to the public sector, which currently finances about half the nation’s health care costs. The United States spends about twice as much per person on health care as other high-income countries, and yet has worse health outcomes, including life expectancy and infant mortality.

The main economic reason for this colossal failure is that our system of private insurance and powerful monopolies is vastly more wasteful and inefficient than the health care systems of other developed countries. Insurance companies spend tens of billions trying to insure the healthy, avoid the sick, and deny payment for claims. Pharmaceutical companies take $350 billion of our health care dollars for drugs that cost a small fraction of that sum to produce.

The Obama health care plan won’t eliminate most of these perverse incentives and waste – eventually we will need a truly national, single-payer system like Medicare to accomplish that. But it would be a big step in that direction, creating a nearly universal insurance system and laying the foundation for a sustainable system that can contain costs.

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Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He is co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and has written numerous research papers on economic policy. He is also president of Just Foreign Policy. "