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Cost and Coverage Impacts of the President’s

Cost and Coverage Impacts of the President’s Health Care Reform Proposal and a Congressional Tax Credit Proposal

Final Report Prepared by: The Lewin Group May 19, 2008 Prepared for: Office of the Assistant Secretary for Planning and Evaluation (ASPE) U.S. Department of Health and Human Services (HHS)
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Footnotes

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

Recent estimates suggest that the U.S. spends $98 billion in excess administrative costs and $66 billion in excess drug costs, compared to other nations with a single-payer system (Krugman, 2007). For example, in 1971, both the U.S. and Canada spent 7-8 percent of their GDP on health care. With the adoption of its single-payer health care syste
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Appendix 2: Description of Variables and Data

The Effect of Health Care Cost Growth on the U.S. Economy. Appendix 2: Description of Variables and Data Sources

Variable Unit of measurement Source Comments Table A.1 describes the variables used in the empirical analysis in section 4, and the sources and construction of these variables. State population Number Bureau of Economic Analysis   Per capita health expenditure Thousands of
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Appendix 1: List of Keywords and Their

The Effect of Health Care Cost Growth on the U.S. Economy. Appendix 1: List of Keywords and Their Combinations Used for the Literature Search

Health care costs + U.S. economy Rising costs + health + economy Health care sector + role + U.S. economy Rise + health care spending + U.S. Health care costs + economic growth Health care costs + GDP Health spending + impact Health spending + GDP Health spending + employment Health spending growth + productivity Health care c
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References

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

Alonso-Zaldivar, R. Health care costs magnify voter unease on economy. Los Angeles Times . October 25, 2006. Assistant Secretary for Planning and Evaluation (ASPE). Effects of Health Care Spending on the U.S. Economy . U.S. Department of Health and Human Services (HHS): Washington, D.C.,  2005. Available at: http://aspe.hhs.gov/health/co
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5. Conclusion

The Effect of Health Care Cost Growth on the U.S. Economy. 5. Conclusion

Rising health care costs have generated concerns that continued growth could adversely affect the nation’s economy, as well as pose problems for particular sectors of the economy, such as employers and households. This report evaluated how increased spending on health care affected aggregate economic indicators and individual sectors.
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Longitudinal Analysis Using State Level Data

The Effect of Health Care Cost Growth on the U.S. Economy. Longitudinal Analysis Using State Level Data

Per capita measures of state government expenditures are used to investigate how per capita health expenditure affects state government finances for the period 1992-2004. Table 14 provides descriptive statistics for these variables. The changes over time in the outcomes and also in per capita health care expenditure are now analyzed for each of
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Cross-Sectional Analysis Using State-Level Data

The Effect of Health Care Cost Growth on the U.S. Economy. Cross-Sectional Analysis Using State-Level Data

First, a cross-sectional analysis is carried out using data from all 50 states for the year 2004 – the most recent year for which data are available on the variables in the analysis. Table 12 provides descriptive statistics for these variables.
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4.3 Effect on State Government

The Effect of Health Care Cost Growth on the U.S. Economy. 4.3 Effect on State Government

Finally, state level data across several years are used to investigate how rising health care costs affect state government finances. As for the analysis involving aggregate economic indicators, the measure of health care cost is per capita health expenditure, and the specific outcomes examined are per capita state government expenditures on healt
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Predictions

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

Finally, the estimates from the full model (reported in columns (7) – (9) of Table 10) are used to predict the percentage changes in employment and value added that would have occurred for a slower (zero growth) or faster (3% per annum) growth in health care costs compared to the actual, observed growth of 2% per annum. These predictions are gen
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Regression Analysis

The Effect of Health Care Cost Growth on the U.S. Economy. Regression Analysis

To further build upon the graphical analysis presented above, multivariate regression models were estimated. The key explanatory variable in the model is the interaction between the log of medical care price index and benefit share in 1987.
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Descriptive Analysis

The Effect of Health Care Cost Growth on the U.S. Economy. Descriptive Analysis

It is expected that industries with a larger share of benefits in total compensation will be affected more by the growth in health care costs. Table 9 provides a detailed list of industries by quartiles of the benefit share in total compensation in 1987.
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4.2 Effect on Private Business / Industry

The Effect of Health Care Cost Growth on the U.S. Economy. 4.2 Effect on Private Business / Industry

Standard economic models predict that an increase in employee health care costs would be financed by an equivalent reduction in cash wages (Summers, 1989; Gruber, 1994). In this model, total compensation remains unchanged even if health care costs rise, and health care cost inflation has no effect on employment or output.
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Longitudinal Analysis Using State Level Data

The Effect of Health Care Cost Growth on the U.S. Economy. Longitudinal Analysis Using State Level Data

For the longitudinal analysis, data on all 50 states over a period of 20 years (1985-2004) are used to examine how the increase in per capita health expenditure affects per capita GSP and unemployment rate. Table 5 provides descriptive statistics for these variables.
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Cross-Sectional Analysis Using State-Level Data

The Effect of Health Care Cost Growth on the U.S. Economy. Cross-Sectional Analysis Using State-Level Data

We first use data on all 50 states for the year 2004 (the most recent year for which these data are available) and examine the association between health care costs and aggregate economic indicators including per capita gross state product (GSP) and unemployment rate.  Table 3 provides descriptive statistics for these variables.
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4.1 Effect on Aggregate Economic Indicators

The Effect of Health Care Cost Growth on the U.S. Economy. 4.1 Effect on Aggregate Economic Indicators

First, state level data across several years are used to investigate the effect of rising health care costs on aggregate economic indicators. The measure of health care cost is per capita health expenditure, and the specific outcomes examined are per capita gross state product and state unemployment rate.
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4. Empirical Analysis

The Effect of Health Care Cost Growth on the U.S. Economy. 4. Empirical Analysis

This section analyzes how health care cost growth affects the economy using available secondary data from a variety of sources. The quantitative analysis described below examines effects on three sectors: aggregate economic indicators, industries, and state governments. The analyses involving aggregate economic indicators and state government fina
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3.5 Effect on Local Economies

The Effect of Health Care Cost Growth on the U.S. Economy. 3.5 Effect on Local Economies

As spending on health care accounts for a higher percentage of GDP, the health sector is a major and rapidly growing source of employment for U.S. workers.  According to the Bureau of Labor Statistics (2006), and as shown in Table 2 below, the health care sector employed over 10 million workers in 2006.  Over the period 1998 to 2006, employment
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Summary

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

There is some evidence that rising health care expenditures have led to a rise in uninsurance rates among U.S. households.  Evidence from recent surveys also indicates that a significant proportion of consumers, especially the uninsured, are burdened by debt due to medical bills and sometimes forego needed medical care and other spending due to h
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3.4 Effect on Households

The Effect of Health Care Cost Growth on the U.S. Economy. 3.4 Effect on Households

Rapid growth in health insurance premiums also affects households.  Firms faced with rising health care costs may limit wage increases, reduce health insurance benefits or require employees to pay a greater share of costs, or increase the number of hours worked (Goldman, Sood & Leibowitz, 2005; Cutler and Madrian 1996).  Goldman, Sood &

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