The Bottom Line on Health Reform and Jobs

Americans want to know how a transformed health care system will affect prospects for employment and job creation. On an issue this consequential, it's important to separate fact from fiction. Analysis of the economic impact of health insurance reform by the President's Council of Economic Advisers (CEA) finds that health insurance reform as proposed in the Senate, and already passed in the House, contains many beneficial effects for labor markets. These findings have been supported by numerous independent analysts including the Business Roundtable and the Congressional Budget Office.

Key benefits to the labor market include the following:

  • By slowing the growth rate of health care costs in the public and private sector, health insurance reform will improve take-home wage growth, improve standards of living, and encourage private sector job growth.
  • More efficient labor markets will spur entrepreneurship, productivity, and growth at small firms, a key source of job creation.
  • Expanding coverage to the millions of Americans who currently lack health insurance will improve health status and reduce disability, increasing labor supply.
  • And finally, reform makes direct investments in the health care infrastructure that will create new jobs in research, information technology, medicine, and public health.

Lowering the cost of healthcare will lower the unemployment rate in the short-to-medium run. Bringing down the cost of healthcare will be good for jobs. Academic studies found that slowing health costs helped boost job growth in the 1990s and that the rapid rise of health costs in the 2000s hurt jobs, especially in manufacturing. Putting in place serious reforms to improve quality and slow cost growth will, in the short-to-medium run, lower the burden on businesses and enable them to hire more workers.

  • The CEA estimated that if the annual growth rate of health spending slows by 1.5 percentage points per year, then the unemployment rate could fall by 0.24 percentage point and jobs could rise by 500,000.
  • Analysis by business groups such as Business Roundtable and other independent analysts shows that reform would slow the growth rate of costs, freeing up funds for job creation. The delivery system reforms and revenue provisions (such as the excise tax on high cost plans in the Senate bill) in current legislation provide incentives and create new measures to contain health care spending, allowing employers to hire more workers rather than spending money on rising health insurance premiums.
  • A newly released CBO report finds that premiums will fall by as much as 3 percent in the large group market and 2 percent in the small group market after reform, showing that employers will reap the cost savings necessary to hire more workers and invest in new property, plant, and equipment.

Health reform will spur entrepreneurship, productivity, and growth at small firms, helping fuel a key engine of job creation. Health reform will lower costs for small businesses through tax credits and pooled purchasing on a competitive exchange – reducing their competitive disadvantage vis-à-vis larger firms, thus helping to fuel a key engine of job creation in the economy.

  • Firms with fewer than 20 employees accounted for approximately 18 percent of private sector jobs in the year with the most recent data, and nearly 25 percent of net employment growth from 1992 to 2005.
  • In the current health care market, small firms must compete for workers alongside large firms that may able to afford better benefits due to their size. Under reform, the health insurance exchange will expand options for coverage, making small businesses a more attractive place for people to work, and encouraging people to start up businesses of their own.

Health market reforms will improve the functioning of labor markets by reducing job lock. By ending limitations on coverage based on pre-existing conditions and expanding portable coverage options, health reform will help reduce "job lock," freeing up workers to be more flexible – increasing the flexibility and productivity of the economy, and increasing labor supply.

Reform legislation invests directly in making the health care system more efficient, creating jobs in research, information technology, medicine, and public health:

  • Reform and the health provisions of the stimulus bill invest billions in modernizing the health care infrastructure, creating high-tech jobs for skilled workers to modernize medical records and work to interconnect health information technology throughout the health care system.
  • The reform bills in Congress create new jobs for doctors, nurses, and other health care providers by investing billions of dollars directly in the health care workforce, especially in the areas that have the greatest need for more health care providers.
  • Reform legislation will create science and technology jobs by encouraging the development of new drugs and new treatments. The bills in Congress create new pathways for the approval of pharmaceuticals and medications such as biosimilar drugs, which will create jobs for the scientists, laboratory workers, and doctors who develop these drugs and conduct the tests needed to ensure their safety and secure their approval.
  • Health Insurance Reform will create jobs for skilled researchers who analyze wellness and public health. Reform legislation devotes millions of dollars in funds toward research in wellness, epidemiology, and public health, investments that will create job opportunities for skilled workers in fields that improve the nation’s health.

Christina Romer is Chair of the Council of Economic Advisers

Related Topics: Economy, Health Care
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