COST: Krugman and the Links Between Health Care and the Economy

Health care is the Kevin Bacon of economic maladies. Name a problem facing the U.S. economy and, without too much effort, you can find a way link to the wealth of nations back to the health of nations. New York Times columnist Paul Krugman zeroes in on this connection in his column today, discussing the close link between health care, jobs, and the economy. He argues:

Most public discussion of health care focuses on the problems of the uninsured and underinsured. But insurance premiums are also a major business expense: auto makers famously spend more on health care than they do on steel. One of the underemphasized keys to the Clinton boom, I’d argue, was the way the cost disease of health care went into remission between 1993 and 2000. ... But premiums surged again after 2000, imposing huge new burdens on business. It's a good bet that this played an important role in weak job creation.

Krugman's point on the "huge new burdens" facing businesses echoes our recent policy paper regarding employer health costs in a global economy. We show how manufacturing firms in the U.S. pay more than twice as much in hourly health costs as their major trading partners—$2.38 per worker per hour versus $0.96. With similar trends in many U.S. industries, it's not surprising that, since 2000, the percentage of employers offering health benefits declined from 69 percent to 60 percent according to the 2007 Employer Health Benefits Survey.

At $2.2 trillion a year, health care plays a major and complex role in the U.S. economy. Krugman simplifies the situation to make a political point about who's to blame for our current economic woes. But the long term relation between health care cost growth and job creation is hard to parse out with 15-variable econometric models let alone 25 inches of prime column space. And when it comes to the economy, the question should not be who is to blame but what is to blame. Here, Krugman is right to highlight the importance of health care to the overall economic welfare of the U.S. Our current economic problems are not an excuse to beat around the bush on health reform. America will recover from its current economic woes, and when it does, it will still be faced with a crumbling health care system in need of sustainable reform.