Senate Democrats

Republican ‘Status Quo Plan’ for Health Reform is Not an Option

After decades of doing nothing on health care reform, some Republicans continue to argue that reform is unnecessary and we just need to “get out of the way and allow the market to work.” [Senator DeMint, Congressional Record, 7/20/09]  As Democrats champion meaningful, effective reform of our broken health care system, too many Republicans are supporting the “status quo plan,” which is guaranteed to raise taxes, increase families’ out-of-pocket health care costs, cause the federal deficit to skyrocket, leave more and more Americans without insurance, and slow economic growth and household incomes.

Health Care Status Quo is Unsustainable for Family Budgets

Unless the status quo is changed, skyrocketing health care costs will continue to slow economic growth, suppressing the growth of Americans’ incomes.  A recent report by the Council of Economic Advisors (CEA) found that unless we enact health reform to slow the rate at which health care costs grow, income for a typical family of four will be reduced by $2,600 in 2020 and by nearly $10,000 in 2030. [CEA, 6/2009]

If the status quo continues, not only will American incomes grow more slowly, the portion of their income they must devote to health care costs will continue to rise.  Over the past nine years, premiums for employer-sponsored health insurance have more than doubled, a growth rate four times faster than cumulative wage increases.  According to the Kaiser Family Foundation, the average cost of an employer-based family insurance policy premium in 2008 was $12,680 – nearly the annual earnings of a full-time minimum wage job. [Kaiser Family Foundation, 9/24/2008; HealthReform.gov, 3/2009

Continuing the status quo means the average cost of family employer-sponsored health insurance will top $24,000 by 2016, an 83 percent increase over 2008 premium levels. [New America Foundation, 11/2008]  To meet this high cost, at least half of American families will have to spend more than 45 percent of their annual income to purchase health insurance.[New America Foundation, 11/2008]

While the majority of Americans have health insurance, they pay the price for those who do not.  Doctors and hospitals charge insurers more for the services provided for patients who do have health insurance, and the insurers pass on these shifted costs in the form of higher premiums for consumers and businesses that purchase health insurance, resulting in a “hidden tax.” [Families USA, 5/2009]  For 2009, the hidden tax is estimated at $1,100 per family ($410 for singles), or eight percent of annual medical costs. [Center for American Progress, 3/23/2009]  Unless we alter the status quo, this hidden tax is likely to grow, raising health care costs for all Americans.

Health Care Status Quo is Unsustainable for American Businesses, Especially Small Businesses

In the United States, employer-sponsored health insurance is the largest source of health coverage, with 61 percent of people under age 65 covered through their employer.  [Kaiser Family Foundation, 5/2009]  The strong role of American business in the health care system means that businesses also suffer from the status quo, with rising health care costs consuming an ever greater share of business resources.  For example, manufacturing firms in the United States pay $2.38 per work per hour in health costs, more than twice as much as the average costs for their major trading partners of $0.96 per worker per hour. [New America Foundation, 5/2008]

These high and growing costs have led many firms, particularly small businesses, to consider discontinuing the health coverage they offer to employees.  Between 2000 and 2007, the percentage of small businesses offering health insurance coverage to their employees dropped from 68 percent to 59 percent. [Kaiser Family Foundation, 9/24/2008]  If the status quo continues, this decline is expected to continue as approximately 10 percent of small businesses are considering eliminating coverage during the next year and around 19 percent of companies are planning to do so over the next three to five years. [Wall Street Journal, 5/26/2009]  These reductions would add to the 13 million uninsured small business employees.[HealthReform.gov, accessed 6/7/2009]

Businesses that are able to continuing offering health coverage to their employees find the high costs negatively impact other parts of their business.   For example, 40 percent of small business owners state that high health care costs have a negative effect on other parts of their business, such as high employee turnover or preventing business growth. [The Main Street Alliance, 1/2009]  In addition, small businesses that are able to offer health insurance to their employees find that it is a substantial drain on their payroll, with 40 percent of these businesses spending more than 10 percent of their payroll on health care costs. [The Main Street Alliance, 1/2009]  These costs continue to rise, as health insurance premiums rose by 5.5 percent in 2007 and five percent in 2008. [National Coalition on Health Care, accessed 6/7/2009]  One survey found that more than one-fifth of small businesses reported yearly premium increases over 20 percent for the past four years. [National Small Business Association, 3/23/2009]

In light of all of these challenges, a recent study conducted by the Small Business Majority concluded, “Small businesses in the United States are suffering great harm under our current healthcare system and will likely fare far better under a substantially reformed system along the lines of what is currently being debated in Washington.”  [Small Business Majority, 6/11/2009]

Health Care Status Quo Stifles Economic Growth and Competitiveness

Real per person spending on health care has been increasing rapidly, rising over 40 percent in the past decade alone.  Between 1980 and 2007, the share of gross domestic product (GDP) devoted to health care almost doubled.  In 2007, the United States spent a total of $2.2 trillion on health care, which represents $7,421 per person or 16 percent of GDP. [Health and Human Services, accessed 3/11/2009]  This figure does not include between $124 billion and $248 billion the U.S. economy loses due to “uninsured Americans who live shorter lives and have poorer health.” [Center for American Progress, 5/29/2009]  In addition, this level of health spending relative to the GDP is nearly twice the average of other developed nations. [Organisation for Economic Cooperation and Development, 12/10/2008]

Source: New America Foundation, 6/30/2009

In 2009, health care expenditures are expected to be approximately 18 percent of GDP, and according to the White House: “Virtually all analysts agree that without major reform, health care’s share of GDP will continue to rise rapidly.” [CEA, 6/2/2009] Continuing the status quo would allow the health share of GDP to rise to 28 percent in 2030 and to 34 percent in 2040.  A study by the Congressional Budget Office (CBO) found that if the status quo is allowed to continue, health care costs will eventually consume 99 percent of GDP. [New America Foundation, 6/30/2009]

Source: New America Foundation, 6/30/2009

Health Care Status Quo is Unsustainable for Government Budgets

The Congressional Budget Office estimates that federal spending on Medicare and Medicaid was approximately four percent of GDP in 2008.  Unless we alter the status quo, health care spending is projected to consume 25 percent of total GDP in 2025, just 16 years from now, while federal spending on Medicare and Medicaid will balloon to seven percent of GDP during that time period.

Projected Spending on Health Care

Under an Assumption That Excess Cost Growth Continues at Historical Averages

Source: Congressional Budget Office, 1/31/2008

Almost half of current health care spending is covered by state and local governments. 

Unless we alter the status quo, federal and state Medicare and Medicaid spending will rise to nearly 15 percent of GDP in 2040.  According to the White House, roughly one-quarter of this increase would be due to the aging of the population and other demographic effects, and three-quarters would be attributed to rising health care costs. [CEA, 6/2/2009

Unless we alter the status quo, our nation will face a significant long-term imbalance between revenues and spending.  In the absence of “potentially painful and harmful large tax increases or cuts in other government spending, these rising deficits will “lower national saving, raise interest rates, and crowd out investment.  And, deficits are only a stop-gap; eventually we would have to choose among tax increases, spending cuts, and repudiation of our debt through high inflation or outright default.” [CEA, 6/2/2009]

White House economists project that, with health care reform, the federal government budget deficit could be reduced by three percent of GDP relative to the no-reform baseline in 2030, assuming that the savings are dedicated to deficit reduction. [CEA, 6/2/2009]  Expanding health care coverage would also increase the labor supply, which would tend to increase GDP and reduce the budget deficit. [CEA, 6/2/2009]

Health Care Status Quo is Unsustainable

The health care status quo is unsustainable for American families, American businesses, the government, and for our economic competitiveness.  The Republican “Status Quo Plan” would guarantee that families will pay more for health care, Americans’ taxes will rise, the deficit will grow, and American wages will not grow fast enough to allow Americans to keep up.  Allowing the status quo to continue will push American family, business, and government budgets past their breaking point.  The status quo is unacceptable, and Democrats are committed to enacting health reform that ensures Americans have stable health care costs, stable health care coverage, and quality health care.

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