On Tuesday, Sen. Ben Nelson (D-NE) characterized the administration’s efforts to pass health care reform as a “mistake” and argued that the nation would have been better served if Congress spent more time strengthening the economy and creating jobs. Well today, a new report by David Cutler and Neeraj Sood suggests that health care reform would actually do just that. “One important way to create jobs is to slow the growth of medical spending,” the report argues. “If health care cost increases slow down, then businesses will find it more profitable to expand employment and workers will more readily move into those new jobs”:
Rising health care costs affect employment in two basic ways. On the employer side, employer-paid health premiums are a cost of business, just as wages and salaries are. Reducing the growth of health insurance premiums would therefore enable employers to hire more workers, according to economic theory, holding wages and other benefits constant. On the worker side, most workers are willing to give up wage and salary payments in order to receive employer-paid health insurance. When health insurance premiums rise, therefore, workers who value health insurance as part of the job are often willing to accept lower wages in exchange for the higher benefits. Conversely, when costs fall, a large part of the impact will be on higher wage and salary payments. A major effect of health care reform that lowers employer premium growth will therefore be to raise middle-class wages.
Cutler and Sood estimate that slowing premium growth would create between 250,000 and 400,000 jobs a year this decade:
Sen. Max Baucus (D-MT) said it best in his now forgotten white paper. “Health care reform is not a distraction from addressing our economic challenges; health care reform is an essential part of restoring America’s overall economy and the finances of our working families.” Lower health care costs would allow employers to invest money (they otherwise would have spent on health insurance) into expanding their businesses and hiring new workers. The expansion in coverage should also lead to a job boom in the health care sector.