President Obama’s Council of Economic Advisers Outlines Economic Case for Health Care Reform

The Council of Economic Advisers in the Executive Office of the President published on Tuesday, June 2, 2009, The Economic Case for Health Care Reform.

We provide an excerpt from the beginning of the Executive Summary that highlights “large economic impacts” of health care reform, and the report’s conclusion (Section VII on pp. 38-39) that highlights that the current “American health care system is on an unsustainable path.”

Excerpt from Executive Summary

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 nearly 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.

Conculsion

The American health care system is on an unsustainable path.  Expenditures as a share of GDP are already substantially higher than in other developed countries, and are projected to grow rapidly in the next three decades.  This growth threatens to have a devastating impact on the growth in workers’ take-home pay and the government budget deficit.  It is also likely to increase the number of Americans without health insurance from its already very high level and thus undermine the health of our population.

Successful health care reform will slow the growth rate of health care costs, maintain choices of doctors and health plans, and expand coverage.  Slowing the growth rate of costs by 1.5 percentage points per year would have a dramatic impact on the trajectory of health care expenditures as a share of GDP over time.  Slowing the growth rate of costs by a smaller amount (0.5 or 1.0 percentage point per year) would have smaller, but still important effects.

Our analysis shows that successful health care reform would have major benefits for the U.S. economy.  Over time, the slowing of cost growth through increased efficiency would bring about substantial increases in Americans’ standard of living.  It will also prevent devastating increases in the budget deficit and raise capital formation.  We estimate that slowing health care cost growth by 1.5 percentage points will increase real GDP in 2030 by nearly 8 percent relative to what would happen without reform.  We also find that slowing cost growth is likely to lower the unemployment rate consistent with steady inflation by roughly one-quarter of a percentage point for an extended period.

The net welfare effects of expanding coverage to the uninsured are also likely to be very large-probably in the range of $100 billion each year.  Genuine reform will also likely increase labor supply, reduce job lock, and aid small businesses.

The kind of reform that will bring about these economic rewards will not be easy.  It will require truly game-changing innovations in many areas.  But, if we can bring about such changes, there will be substantial benefits to American households, businesses, and the economy as a whole.

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