THE FALLACY OF HEALTH CARE REFORM AS ECONOMIC STIMULUS

January 21, 2009

After spending decades trying to reduce health care costs, some commentators and policymakers now argue that health care costs should be increased to stimulate the economy.  At the crux of the argument are the notions that increasing spending on health care will create jobs and that implementing long-proposed reforms will reduce health care costs. 

However, these two arguments are fundamentally at odds with each other, says Robert Book, a senior research fellow with the Heritage Foundation:

  • Health care jobs are clearly a benefit to workers who would otherwise have worse jobs or no jobs at all, but as long as employees need to be paid, one person's job is also another's cost.
  • Artificially increasing the number of health care jobs also artificially (and wastefully) increases health care costs.
  • On the other hand, reducing total health care spending means there is someone who would otherwise be paid who is either no longer being paid or being paid less -- and that person is losing a job or taking a pay cut.

Moreover, these arguments neglect the bigger picture: any money the federal government spends on health care reform, health IT, Medicaid, roads and bridges or anything else has to come from somewhere.  And that "somewhere" is either increased taxes, more borrowing or inflation of the currency; any combination of which would cancel out any "stimulus" effect of the new spending.  For example, spending money on health care or "roads and bridges" might create jobs in the health care or construction industries, but that is only at the cost of jobs destroyed somewhere else. 

Prosperity cannot be achieved by simply moving resources around from one sector of the economy to another.  Rather, it can be achieved only by increasing production, which can be induced not by spending but by reducing the taxes and regulations that inhibit productive activity, says Book.

Source: Robert Book, "The Fallacy of Health Care Reform as Economic Stimulus," Heritage Foundation, WebMemo, No. 2231, January 16, 2009.

 

Browse more articles on Health Issues