The Effect of Health Care Cost Growth on the U.S. Economy. Negative Effects


There are no large scale studies that directly examine the detrimental effect of health care cost growth on aggregate economic outcomes such as per capita income, inflation, and unemployment rate. However, there is evidence of a negative effect on employment, which we discuss in a subsequent sub-section.

Anecdotal evidence from several newspaper reports suggests that rapid increase in health care costs negatively affects the economy. Prominent examples include the following:

  • For each mid-size car Daimler Chrysler AG builds at one of its U.S. plants, the company pays about $1,300 to cover employee health care costs - more than twice the cost of the sheet metal in the vehicle. In comparison, when it builds an identical car across the border in Canada, the health care cost is negligible (Downey, 2004).  Politicians have claimed that auto worker jobs have been moving from Michigan to Ontario in response to lower health care costs in Canada (Harper, 2007). A recent report suggests that faced with shrinking markets and billions of dollars in future health care liabilities, Detroit’s Big Three automakers – General Motors, Ford Motor and Chrysler Group – have expressed interest in exploring an arrangement with the United Auto Workers whereby the latter would assume responsibility for billions of dollars of retiree health care costs (Carty, 2007).
  • Government data, industry surveys and interviews with employers big and small indicate that many businesses remain reluctant to hire full-time employees because health insurance, which now costs the nation's employers an average of about $3,000 a year for each worker, has become one of the fastest-growing costs for companies. Health premiums are eroding corporate balance sheets even more than the rising cost of energy (Porter, 2004).
  • Starbucks reports that they spent more on health insurance than they did to buy the raw materials to produce their coffee (NCHC, 2006). Wal-Mart, which employs more than 1.2 million U.S. workers and is an industry trendsetter, says it spends $4.7 billion a year on health care and retirement benefits for employees (Hall, 2006).

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