President Obama’s Commerce Secretary, Gary Locke, wrote a piece in the August 28 Wall Street Journal about business and health care reform. Locke, of course, was arguing in favor of the health care agenda being pushed by the President and congressional leaders.
Locke focused in on the current high cost of health care coverage for businesses. For example, he wrote: “The cost pressure is particularly acute for small businesses, which, on average, pay 18% more per worker than large firms for the same health-insurance policies. They pay more because they have a smaller risk pool and have to absorb higher broker fees and administrative costs per worker. As a result, many small businesses don't offer health coverage. Just 49% of firms with three to nine workers and 78% of firms with 10 to 24 workers offered health plans in 2008, while 99% of firms with over 200 workers did.”
Locke concluded: “President Obama has articulated three broad criteria for reform. Reduce costs, protect Americans' choice of doctors and insurance plans, and assure quality and affordable health care for any American who wants it.” And then he added: “The bills working through Congress are moving in the right direction, and despite some setbacks, this nation is closer to fundamental health-care reform than we have ever been.”
Of course, rising health care costs are a burden for business, especially smaller firms. But the assumption that more government involvement, as spelled out by President Obama and congressional leaders, is the answer makes no sense. When has more government involvement in anything ever produced lower costs? Instead, what we see are higher costs and diminished quality.
Part of the current cost problem is the expanded role of government funding in health care. Consider, for example, that in 1960, government funded 21.4% of personal health care spending. By 2006, government’s share had more than doubled to 45.3%. At the same time, out-of-pocket payments plummeted from 55.2% in 1960 to 14.6% in 2006. In addition, private health insurance’s share increased from 21.4% to 36%.
This dramatic shift to third-party payments – in particular, to government funding – has been a major cost driver over recent decades. Health care consumers and providers have few incentives to be concerned about prices and utilization, while those in government care little about costs as they are spending other people’s (i.e., the taxpayers’) money.
That all adds up to increased health care costs. Still more government obviously is not the answer.
Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
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