White House Council of Economic Advisers on Health Care Reform

Christina Romer, chair of Obama's Council of Economic Advisers, presented the "Economic Case for Health Care Reform" Tuesday at the Brookings Institution.

We're not talking about the case for single payer here. We're talking about a White House goal of "slowing cost growth" in health care expenditures by 1.5 percent a year over 25 years. The savings would be used to rein in the deficit and free up resources to expand health coverage to Americans who are currently uninsured.

The White House study casts health care reform in a macroeconomic sense. By Ms. Romer's own admission, the reason for the study is to "strengthen the resolve to reform policy."

The 1.5 percent annual reduction in health care spending is a "small" amount, Ms. Romer said, but even this will be challenging for the health care system as it now exists.

Slowing the cost of growth, the study finds, will have lasting effects for the economy. These effects include a two percent higher Gross Domestic Product (GDP) in 2020 and deficit reduction, since the Federal government pays a large portion of health care costs in Medicare and Medicaid.

Reforms that slow cost growth will free up resources to expand health insurance coverage to currently uninsured Americans. Household incomes would see an annual increase of $2,600 for the typical family of four in 2020. Health care reforms would also lead to a decrease in unemployment, according to the White House study.

The case of decreasing unemployment relies on the economy functioning at a higher level overall due to health care reform. The prediction, according to the study, is that the unemployment rate may be lowered by about one-quarter of a percentage point as a result of reduced cost growth in health care expenditures and expanding health insurance coverage to those workers who are currently uninsured.

While one-quarter of a percentage point is nothing to wite home about, if health care coverage becomes universal, or covering everyone, it is entirely believable that reform would affect the labor market.

Workers would not be concerned about losing health care benefits if they wanted to change jobs, thus stimulating the job market. In addition, if there was universal health care, the playing field would be leveled between large and small employers. The White House report also notes that with universal health care coverage the rate of disability and worker absenteeism would decline.

Two panel members at the presentation, however, took issue with the report's predictions for the labor market.

David Cutler, a Harvard economist and former economics advisor to Pres. Bill Clinton, and Douglas Holtz-Eakin, an economist who served on George W. Bush's council of economic advisers, each suggested that health care reform would negatively affect employment in the health care sector.

Mr. Cutler said that 20-25 percent of hospital administrative workers could be let go without affecting the level of patient care. Mr. Holtz-Eakin commented that the "first thing he thinks about [with health care reform] is firing workers."

Ms. Romer said that health care workers would be shifted around with reform. Mr. Holtz-Eakin said that when U.S. manufacturing restructured, the result was a loss of middle-management jobs.

Without health care reform, the White House study found that the number of uninsured Americans (and all the government spending this will entail) will increase from 46 million now to 72 million by 2040. A key factor in this number is the tendency of small business to not provide health care coverage due to cost.

Health care spending in the U.S. is currently at 18 percent of GDP, and expected to go to 34 percent by 2040 without health care reform. Households will experience lower take-home pay without health care reform. State and local governments will also increase health care expenditures without reform.