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Opinion Editorial-The Wall Street Journal-"Fixing Health Care is Good for Business"


Friday, August 28, 2009



Secretary of Commerce Gary Locke
Opinion Editorial, The Wall Street Journal
“Fixing Health Care is Good for Business”

How many aspiring entrepreneurs are stuck in dead-end jobs because of health concerns?

You have probably heard the horror stories about President Barack Obama's health-care proposals leading to rationed care and bankrupt businesses and governments. Those claims are flat wrong. The real horror story is not what health-care reform will bring. It's what's already happening.

There has been a lot of talk about the 47 million Americans who do not have health insurance. But health-care reform is just as important to the majority of Americans who have health insurance now. Absent reform, the price of an average family's insurance will nearly double over the next decade—to $25,000 from $13,000.

No less troubling are the stories I hear from CEOs, entrepreneurs and workers. Rising health-care costs are crushing American companies—particularly small businesses that are the source of much of our economic vitality.

In 1960, U.S. firms spent 1.2% of their payroll on health insurance. In 2006, they spent 9.9%. Costs rising at this rate are unsustainable and put U.S. firms at a competitive disadvantage to foreign companies that almost universally have lighter health-care burdens. It also destroys U.S. jobs.

Last month, the nonpartisan Rand Corporation released a study that looked at 37 industries from 1987 to 2005 and concluded that excess health-care costs were causing significant job losses as well as revenue and output losses for many American industries. After controlling for other factors, sectors with the highest percentage of employer-sponsored health care (such as the automotive industry) had worse performances than industries in which employer health coverage is uncommon.

These escalating costs have been passed on to the middle class in the form of higher prices and flat wages. Money that would have gone to raises has instead been spent on health-care premiums that have doubled over the past nine years.

The cost pressure is particularly acute for small businesses, which, on average, pay 18% more per worker than large firms for the same health-insurance policies. They pay more because they have a smaller risk pool and have to absorb higher broker fees and administrative costs per worker. As a result, many small businesses don't offer health coverage. Just 49% of firms with three to nine workers and 78% of firms with 10 to 24 workers offered health plans in 2008, while 99% of firms with over 200 workers did.

It's hard to know how much health-care costs affect small businesses. But it is clear that rising costs don't help them. In the third quarter of 2008, half of all private-sector job losses occurred in companies with fewer than 20 employees.

The pernicious price of runaway health-care costs also has a dampening effect on entrepreneurship.

How many aspiring owners of businesses are locked in jobs they don't like for fear that striking out on their own would cause them to lose their health insurance? The Small Business Majority, a national advocacy group, estimates there are as many as 1.6 million.

In the short term, health-care costs pose a major problem for companies and their employees. In the medium and long-term, these costs pose serious challenges to our economy. This year, health-care expenditures are expected to account for about 18% of our GDP. Without reform, that share is projected to rise to 28% in 2030 and to 34% in 2040. When one out of every three dollars is spent on health care, we will face a situation in which companies can no longer provide insurance. At the same time, if we don't address rising federal health-care costs, we will likely face either much higher taxes or unsustainable deficits that could spike interest rates and threaten capital formation.

Neither option is a future any of us wants to contemplate.

It is clear that demographic and structural trends are leading us toward worse health care and higher costs for employers, workers and governments. But America has a chance to avoid that fate. President Obama has articulated three broad criteria for reform. Reduce costs, protect Americans' choice of doctors and insurance plans, and assure quality and affordable health care for any American who wants it.

The bills working through Congress are moving in the right direction, and despite some setbacks, this nation is closer to fundamental health-care reform than we have ever been.

We must keep moving forward. We are in a twilight period, that precious moment before a problem becomes a crisis. What we do in the coming months will play a big role in determining America's competitiveness and prosperity for decades to come. There is a path toward a more sustainable and prosperous future for America. It's imperative that we take it. The alternative is frightening.