As health care goes, so goes job growth?
Amid the worst labor market in more than a generation, it is surprising that discussions — pro and con — about overhauling health insurance tend to ignore one key issue: The current insurance system that relies on employer-provided policies and little portability threatens future job growth.
If left alone, the current system will curtail job creation in many ways, from raising the total cost of U.S. labor to hurting global competitiveness, besides dimming the entrepreneurial spirit. While it’s hard to pin down numbers, it’s safe to say that no change on health care will make it even tougher to bring down the unemployment rate, currently at 9.7%.
A study by Hewitt Associates forecasts that absent change, U.S. companies providing health insurance will face an annual bill of $28,530 per employee by 2019 — almost three times more than the $10,700 cost in 2009.
That leaves U.S. multinationals and exporters at a huge disadvantage because their foreign competitors in developed economies don’t provide health insurance to their workers. Instead, medical care is funded by the government.
As a report by the Business Roundtable said, “America’s businesses cannot win in the marketplace when bidding against global companies [that are] shouldering significantly lower health-care cost burdens.”
In other words, U.S. companies will lose sales, lessening the need for more U.S.-based labor.
Domestic demand will take a hit as well. Higher health-care bills means less money to give out in the form of cash wages. Slower income growth will hurt consumer spending. Small businesses, from restaurants to hair salons, depend on households as customers. Without increased sales, they have no need to take on extra staff.
At the same time, workers will have fewer career paths because of the possible loss of health insurance if they leave their current jobs. That will reduce earnings growth and the number of start-up companies that could create new jobs.
Workers with health problems (or with an ill dependent) often stay in a job because of the fear that a new insurance plan will not cover an existing condition. Economists have estimated this job-lock reduces voluntary turnover from 16% yearly to 12%. That means about 2 million workers stay in a job because of health insurance concerns.
Switching jobs expands income potential (since people most often take new jobs that pay more). Research shows that reducing job-lock by making health insurance portable could raise personal income by $30 billion a year. But if workers are stuck in jobs, the loss of potential income will hurt consumer spending growth.
Similarly, workers decide against becoming entrepreneurs because of the unavailability or high cost of individual insurance policies. Past research on male workers indicates that their worries about insurance stop about a quarter of possible entrepreneurs from going out on their own. Start-up businesses that survive and become small firms are the primary generators of jobs.
So whether you are for the Senate bill, the House proposals or prefer an entirely new approach, keep this in mind: Maintaining the status quo isn’t a viable option. The current insurance system will lead to many fewer jobs in the U.S. in the coming decades.