Why Businesses and Economists Are Backing the Health Care "Public Option"

Arguing that delaying or diluting a public plan is what's really bad for business, economists and small business leaders are stepping up their support for an option they say could save the economy.

In the fight to frame the debate over health care reform, opponents of a universally available public plan rely again and again on what they seem to consider their trump card: the economy. Last week, a Congressional Budget Office analysis determined that initial plans proposed by leading Democratic Senators would be more expensive than anticipated (though former Labor Secretary Robert Reich listed some of the crucial factors left out of the analysis), and the news was interpreted far and wide: Any form of public health care is bad for business, bad for the economy, and impossible during a recession.

This may sound like a new version of the all too familiar notion that, in a dispute between the short-term health of our economy and the long-term health of our nation, the former ought to win. Sure, it’s nonsensical—but it’s also effective (remember “Drill, baby, drill”?).

This time, though, economists are trying to tell us that the dispute has more to do with framing than with substance—that there may be no need to take sides. A robust public plan, they say, wouldn’t come at the expense of the economy. It would come to its rescue. In a recently-released petition, more than 300 economists, business leaders, and health care experts declared that “we can’t afford NOT to reform our health care system.” Meanwhile, an in-depth study of the effect of a pay-or-play system (in which large firms are required to either provide health coverage for their employees or pay into a public fund all workers could access) on employment found that such a system would likely lead to significant job growth.

So what makes them conclude that universal, public health care is good for the health of businesses and workers, too? There are a lot of factors:

For all the harm that housing bubbles and layoffs have done to the balance sheets of American families, it’s often missing or insufficient health insurance that sends them over the edge. One study found that bankruptcy filers had an average out-of-pocket medical debt of $12,000; another noted that every 30 seconds, an American files for bankruptcy in the aftermath of a serious health issue. Universal coverage would not only help prevent these bankruptcies, it would, in the words of the economists’ petition, “give lower and middle-income Americans greater financial security—and the ability to pay their mortgages, start small businesses, save for college, pursue new job opportunities, and make other choices that will benefit our economy.” In other words, helping families stay solvent is as least a good a definition for “economic stimulus” as roads and bridges.

One of the hidden costs of our health care problem is that it constrains those who would like to change jobs or start new businesses. A new report by MIT’s Jonathan Gruber found that at least 1.6 million small business workers suffer “job lock,” meaning they can’t leave their job for fear of losing benefits.

Health care costs keep small businesses from offering the jobs, and the wages, that they otherwise could. A 2006 study showed that pay levels decline 2.3 percent with every 10 percent increase in health premiums; the Small Business Majority found that, over the next 10 years, health care reform would save $29.2 billion in small businesses’ profits, $309 billion in their workers’ wages, and 128,000 small business jobs that would otherwise be lost. A study published last year in the Journal of the American Medical Association, which found that wages suffer when health costs grow, stressed that “workers and households pay for health insurance through lower wages and higher prices.”

Big businesses suffer, too. Take a look at U.S. auto manufacturers, laboring under the high costs of medical care for workers while trying to compete with manufacturers from countries with universal health care. It’s one major reason production gets outsourced.

A streamlined system would slash administrative costs. Ask any doctor (or any medical receptionist): Today’s insurance payment systems are incredibly complex. A University of California, San Francisco study found that, by switching to a single payer system like Canada’s, the U.S. could save $161 billion every year on paperwork alone—as Holly Dressel pointed out in this YES! Magazine article about Canada’s system, “these billions of dollars are not abstract amounts deducted from government budgets; they come directly out of the pockets of people who are sick.”

In these days of picketing CEOs’ houses, let’s not forget the price of profit when health is a purely private industry. CEOs in the insurance industry make their millions, too, and pharmaceutical companies keep a full 17 percent of what we pay for medicine as profit (compared to a 3 percent profit margin for other businesses). Another 30 percent goes toward marketing and administration, leaving research and development only a 12% slice (see these and more thought-provoking numbers here). In a public system, that money could be redirected to, well, health care.

And finally, with costs spiraling out of control (health care spending is expected to be 20 percent of GDP by 2016—compared to 9.7 percent in Canada), things will only get worse without a robust public option to offer what Jacob Hacker called the three Bs: “We need a national public plan that is available on similar terms in all parts of the nation as a backup. This plan has to have the ability to improve the quality and efficiency of care to act as a benchmark for private insurance. And it has to be able to challenge provider consolidation that has driven up prices to serve as a cost-control backstop” (emphasis added).

A public plan gets the support of 76 percent of Americans and it’s good for the economy? The only argument left against the public option appears to be that it would be too popular – that Americans would vote with their feet and choose the public option when offered a choice.

Political cover for opposing the public option is getting harder and harder to find.

Correction: The original version of this piece said that the Small Business Majority supported the 'public option.' In fact, the SMB favors a reformed system "based on shared responsibility among individuals, business, government and the healthcare industry," which would include tax credits for small businesses and a sliding-scale pay-or-play system.

Photo: On May 30, thousands rallied in Seattle for health care reform. Photo by Neil Parekh/SEIU Healthcare 775NW