Health-Cost Crossroad: Why American Businesses Urgently Need Health System Reform

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Abstract:

This issue brief describes how the problems in the health system affect U.S. businesses; how this
situation affects workers and families; and why reform is needed by 2012. It also includes a Spotlight on Oregon, highlighting the State’s unique strengths and challenges. Highlights include:

Rising Health Costs Stress Businesses: Businesses provide health insurance for 61 percent of all non
elderly Americans and finance a quarter of our $2 trillion health system. Yet, job based health insurance premiums have risen by 98 percent between 2000 and 2007, nearly five times faster than the rate of inflation. This affects all companies in different ways:

New challenges in a changing economy: The volatility of the booming service industry makes it expensive for these businesses to provide workers with health insurance. In 2007, 59 percent of the companies in the service industry offered health benefits, compared to 78 percent of manufacturing firms. The rapidly changing nature of work calls into question the employer based insurance model for an increasing portion of the workforce.

Perennial challenges for small businesses: Health benefit costs tend to be higher for businesses that have fewer workers to bear the administrative costs and risk. Because of this, only 45 percent of businesses with fewer than 10 workers provided health insurance in 2007 – down from 57 percent in 2000.

Diminished global competitiveness: Health care costs continue to rise rapidly, which impedes American companies’ viability in the global marketplace. Although it has since rebounded, the United States fell to sixth place in the World Economic Forum’s global competitiveness ranking in 2006, in part due to health costs.

Burgeoning cost of covering retirees: Rising health care costs are preventing employers from covering their retirees. By 2007, only 33 percent of large firms offered retiree health benefits. The costs have become so great that, in 2006, 46 percent of large employers capped spending on retiree health benefits.

Few Options for Businesses: Businesses have few options to ease the burden of high health costs. While many have pioneered cost control strategies, others’ actions have resulted in:

Less coverage: The proportion of firms offering health benefits fell from 69 to 60 percent between 2000 and 2007. About 80 percent of the uninsured are in working families.

A “hidden tax”: Reduced coverage does not eliminate health costs; costs often get shifted to those who can pay, adding as much $500 to $1,500 to premiums.

Unsustainable Trends: By 2012, if trends persist: the number of uninsured will climb by 7 million (to 54 million), health costs will top $10,000 per capita, and business costs will rise by 55 percent.

Impact on Oregon: Despite overall economic and job growth and successes in health care efficiency, health costs consume an increasing portion of Oregon businesses’ revenues and wages and the percent of uninsured Oregonians continues to increase.

Solution: The solution for businesses and the nation is system wide reform that covers all, improves value, promotes wellness, and shares responsibility for managing and financing a new American health care system.