Health Care Crisis Deniers Underscore Shortcomings Of CBO

In today’s Wall Street Journal, health care crisis denier Sally Pipes writes, “the assertion that the costs of providing health insurance cripples American corporations in the global economy is simply wrong.” At first glance, Pipes’ argument sounds manufactured.

We’re all familiar with the numbers. General Motors spends $71 per worker per hour on health care, while Toyota spends only $47. Health care costs add $1,525 to the price of every GM vehicle, and the company spent $5.2 billion on health care benefits in 2004. It spends more on health care than on steel, and Starbucks pays more for benefits than coffee beans.

But while Pipes’ argument is counterintuitive, it’s not entirely wrong. At least not according to the Congressional Budget Office (CBO), the agency responsible for scoring Congressional proposals. Last week, while testifying before the Senate Finance Committee, CBO director Douglas Elmendorf explained that “for employers, health care is merely a part of total compensation”:

Although U.S. employers may appear to pay most of the costs of their workers’ health insurance, economists generally agree that workers ultimately bear those costs. That is, when firms provide health insurance, wages and other forms of compensation are lower (by a corresponding amount) than they otherwise would be. As a result, the costs of providing health insurance to their workers are not a competitive disadvantage for U.S.-based firms.

But this doesn’t tell the whole story. Health care costs are soaring faster than inflation, and instead of cutting worker’s wages, businesses are struggling to keep up with costs and are scaling back coverage. The National Federation of Independent Businesses reports that “58 percent of all small-business owners” are having a “hard time keeping up with the cost of health care.”


Consequently, “in 2010, 49% of employers will reduce their health benefit plan offerings. Forty percent of employers will increase adoption on consumer-driven health plans and two-thirds of employers will move more costs to employees.

Meanwhile, the business groups are clamoring for health reform, arguing that they can’t sustain growing health care costs:

NFIB: NFIB agrees that the current growth in healthcare costs is unsustainable for the government and for small businesses alike.

Business Roundtable: Rising health care costs affect all American workers, employers and the government. Rising costs impact job creation, diminish the nation’s competitiveness and reduce Americans’ ability to save for retirement

Chamber of Commerce: A healthy workforce is the backbone of a strong economy, but spiraling health care costs curb the competitiveness of U.S. businesses and constrain tight family budgets.

The CBO’s analysis, while economically and theoretically sound, is completely divorced from reality. While wages may pay for health care costs in the long run, workers won’t accept smaller paychecks every time premiums increase. As Sen. Max Baucus (D-MT) pointed out at the hearing with Elmendorf, when considering the costs and consequences of health care reform proposals, Congress should not be “in the old situation where whatever CBO says is God.” “In my judgment you’re not God,” he said.