New Health Dialogue - logo

HEALTH REFORM: False Choices: Health Reform or the Economy?

In today's New England Journal of Medicine, MIT economist Jonathan Gruber asserts that the choice between saving our economy and making high-quality, affordable health insurance available to all Americans is a false one. He continues, "a smart health care reform bill, which has at its center universal health insurance coverage...can improve both individual health and the economy's health, both today and in the long run". We agree wholeheartedly with Gruber's thesis; and, want to highlight how Congress and the White House have recognized the important interplay of health coverage and healing our economy in the pending stimulus bill.

In his article, Gruber outlines five ways that enacting comprehensive health reform will help our economy.

First, health reform will provide resources to cash-strapped states for their public insurance programs. Gruber cites incentive payments in the SCHIP re-authorization bill for enrolling eligible children in health coverage.

Understanding the need to move quickly, the House has already passed the re-authorization of SCHIP and the Senate is likely to follow when it votes today on the bill.

In addition to re-authorizing SCHIP, Congress has acknowledged the interplay between health care and the economy, by increasing federal money for state Medicaid programs in the pending stimulus bill. This money will create a "multiplier effect" that will inject new money into state coffers which will, in turn, create new jobs, and induce consumer spending. In fact, a survey of state-based studies of Medicaid spending found that in Idaho, Medicaid funds generate economic activity that is five times larger than the original investment.

Second, Gruber argues, health reform will put money (in the form of premium subsidies) in the hands of lower-income Americans who are more likely to spend than save. In a previous study, Gruber found that lower-income families who are granted Medicaid coverage increased their spending by an average of $800 per year. (This fact also proves his earlier point that funding state health programs boosts economic activity).

Gruber's second point is distinct from his first and, as such, is less about the economic stimulus of expanding public programs and more about the security provided by health coverage. He shows that when families who are already hurting economically no longer have to worry about the effect of a catastrophic medical event, they are more likely to spend money, rather than save it. Economists agree with this conclusion and argue that effective stimulus should increase money to those in need (those most likely to spend), possibly through state programs like unemployment insurance and Medicaid that create the biggest "bang for the buck," (between $1.38 and $1.73 per dollar invested).

In the stimulus bill, Congress allows some newly unemployed individuals (p. 11 for explanation) not currently eligible for Medicaid to enroll in the program and provides subsidies for the newly unemployed to pay their COBRA premiums. By protecting these individuals from the cost of medical care, Congress is freeing them up to continue or, in most cases, increase their spending habits, stimulating our economy.

Unlike in the stimulus, in a health reform bill, instead of subsidizing COBRA or expanding Medicaid, low-income individuals would receive subsidies so that they could both afford health coverage and continue to stimulate the economy.

Third, Gruber points out that health reform will greatly reduce, if not eliminate, the job-lock associated with employer-sponsored health insurance. Gruber concludes that the fear of leaving a job with health insurance for one without coverage reduces job mobility by as much as 25 percent.

While the stimulus bill does not directly address the issue of job-lock, comprehensive health reform, would alleviate the problem and increase economic activity. By creating high-quality, affordable insurance options outside of employer-sponsored insurance, health reform would make it easier for entrepreneurs and small businesses to create jobs without having to worry about paying the high cost of employee health care.

We would also point out that health reform and curing health care costs will help our nation's economic competitiveness.

Fourth, health reform will create many new jobs. Gruber concludes that investments in Health IT and care-coordination through medical homes will provide many new jobs for those currently in the medical and technology fields and those displaced by the recession.

While the stimulus did not tackle the important issue of coordinating care, it did provide $20 billion in funding for health information technology infrastructure. This money will go a long way toward creating new jobs that help create, implement, and maintain a health IT infrastructure in the United States. Additionally, as the CBO score of the stimulus bill finds, these investments in Health IT will actually save money.

Finally, Gruber makes the connection between health reform and controlling health care costs. We believe that health reform gives us the opportunity to control health care spending and thus the cost of Medicare and Mediciad. As former CBO Director Peter Orszag said time and again, the single greatest threat to our nation's fiscal future is rising health care costs. If the Massachusetts example has taught us anything, it is that you can't just address coverage; you also must consider cost and quality.

In recognizing the important and growing link between our economy and our health system Congress has made important steps toward tackling health reform head-on.