The Core of the Health Care Debate

Health care reform dominates the headlines this week, and every American has a stake in what happens.

Critics say that health care reform sets the stage for eventually assuming 15%-17% of the U.S. economy (depending on the data used — the U.S. Health and Human Services Department has health care costs at 16.2% of GDP in 2010). Advocates say that the government won’t take over health care for U.S. consumers — but will set up guidelines on what private insurers can and cannot do, while mandating coverage for all U.S. citizens.

These are political arguments, and no doubt they’re beginning to rub raw against both factions. But what about the economic impact of health care reform?

Rising Costs, Rising Debt

Health care reform doesn’t come cheap, something that people on both sides of the aisle have acknowledged. But let’s take a deeper look at the numbers and what they might mean for the future of our country and its economy.

According to Deloitte.com, health care spending rose to 17.3% of GDP at the end of 2009 — up from 16.2% in 2008. While the overall economy shrank 1.1% in 2009, costs increased 5.7% overall, 8.7% in government programs and 2.8% for private businesses. The federal budget assumes health costs will increase at 6.1% annually with GDP growth forecast at 4.4% annually through the end of the decade. That means health care costs are growing faster than our overall economy.

So what does this mean for the overall economy? Well, since the government may be forced to borrow money to pay for health care, the Fed may have to raise interest rates in order to pay back overseas lenders. That could weaken our dollar and put the U.S. economy in further jeopardy. Plus, as bond rates rise, so too will mortgage rates, leading to higher housing costs.

But will it really get this bad? Well, according to one conservative think tank, yes. The Heritage Foundation’s J.D. Foster, a senior economics fellow at the institute, elaborates on the negative impact health care reform will have on the U.S. economy:

“The Obama Administration has advanced a broad slate of policies sharing the consistent side effect that they would weaken the economy soon and indefinitely.

For example, the health care reforms working through Congress would mean more government spending, more taxes, and quite possibly higher budget deficits. This is a prescription for a weaker economy. For workers and families, such reform would mean fewer choices and higher health care prices, but it would also mean fewer jobs and lower wages. Exchange markets have a different vantage. They see the U.S. economy quickly becoming a less attractive place to invest, and so as the odds of the public option's passage increases, the dollar sinks further.”

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