Skyrocketing Health Care Costs Hamper U.S. Competitiveness


It's no secret that the U.S. outspends other countries on health care. Health insurance alone, including premiums and employee contributions, averaged $12,680 per family in 2008, according to the Henry J. Kaiser Family Foundation, a respected health-care nonprofit. Overall, the U.S. spent 17.6% of its gross domestic product on health care in 2009, more than double the percentages spent by Japan, Britain, Spain, Italy or Australia.

But health-care costs are far more than just a health issue; they're also an economic problem. The skyrocketing bill for health care, including both public and private expenses, is reducing America's competitiveness as a global producer of goods and services.

Want proof? Take General Motors. Health-care costs added between $1,500 and $2,000 to the sticker price of every GM automobile, the Council on Foreign Relations (CFR), noted in a recent report called "Healthcare Costs and U.S. Competitiveness." Even back in 2005, a GM vehicle's price tag included more health care than steel.

Runaway Costs Accelerate

The problem is only getting worse as all attempts to rein in runaway health-care costs have failed. Since 1999, employer contributions have soared 119% while employee contributions have jumped 117%, according to the Kaiser Family Foundation. As a share of the GDP, total U.S. spending also has more than doubled over the past 30 years, the Congressional Budget Office has reported. And the office expects the percentage of the GDP that America spends on health care will double again from 2009 by 2035, reaching a whopping 31 percent.

We can't afford health care now, so how will we be able to afford it when it doubles? Clearly, health-care costs in the U.S. are on a fiscally unsustainable course, and just as clearly, the competitiveness of America's economy is at stake. Without reform that lowers the costs for U.S. employers and employees alike, U.S. competitiveness will continue to suffer.

Considering the national health-care discussion in Congress, it doesn't appear that reform is on the way. Because while the Congressional debate over the national health-care plan focuses on reforming America's employer-based insurance system and adding a "public option" of Government-provided health insurance, these debates are akin to rearranging the deck chairs on the Titanic if our total health costs don't drop dramatically, and soon.

No Relief in Sight

While supporters of the health-care bill claim it will eventually lead to costs savings, analysts have questioned these projections. The federal Centers for Medicare and Medicaid Services found that the proposed legislation would do little to stem the rise in health-care expenditures, according to the CFR report.

Critics such as Fred Barnes of the Weekly Standard claim that the highly complex plan "low-balls costs and exaggerates the means for paying for it." The bill purports to cut the $1.5 trillion Federal budget deficit by $118 billion, but actually will end up borrowing hundreds of billions of dollars more, Barnes says.

Regardless of whether the current proposal passes or not, many of the underlying strains on U.S. competitiveness will remain unchanged. As the CFR report observes, American businesses labor under a "triple tax" of health care costs. First, they pay for their employees' health insurance, which is skyrocketing in cost. Second, businesses indirectly subsidize Medicare and Medicaid, the federal health-insurance programs for poor and elderly Americans, via income taxes. Third, businesses also subsidize the cost of treating America's uninsured through higher insurance premiums.

High Costs = Slow Growth

While some economists cited in the CFR report see health costs as only modest drags on international competitiveness, one of the few detailed studies on the topic reached a much more sobering conclusion. A June 2009 study published in the Health Services Research Journal found that U.S. industries with the highest levels of employer-paid healthcare – manufacturing, education and finance -- showed the slowest amounts of growth between 1987 and 2005 compared to industries with the lowest level of employer-paid insurance, when they were lined up against their competitors in Canada.

What's more, the extra money being lavished on health care isn't even making Americans healthier than their global counterparts. Even though the U.K., Canada, France, Germany and Japan each spent less than two-thirds of what the U.S. spent on health care, the health of the U.S. workforce lags behind these other nations by 10%, according to a Business Roundtable study released last year. Brazil, China, and India spent just 15 cents for each U.S. dollar spent, yet the health of the U.S. workforce lags behind those three countries by 5%, according to the study.

And the high health-care costs are indirectly affecting the economy as well. American workers say they are increasingly basing career decisions on their employers' insurance coverage and copay costs, the CFR report noted. This skewing of employee decisions could also hurt U.S. competitiveness as workers shun innovation-rich startups which have historically acted as engines of growth in the U.S. economy.

From the point of view of the nation's GDP, which represents the entire output of our economy, it doesn't really matter if we pay for health care through taxes or employer-provided insurance. If we're paying twice as much as our international competitors for health care, and ending up less healthy despite that extraordinary expense, then we are at a competitive disadvantage.