November 14, 2001

November 14, 2001 | WebMemo on Health Care

The Future of Health Care

Wednesday's Wall Street Journal reports that states are rationing health care (subscription required) as economic conditions deteriorate.

The rationing debate last played out during the recession in the early '90s, when states settled on managed care to rein in health-care costs. But managed-care cost controls later were eased amid a public backlash. Meanwhile, during the boom times of the later '90s, states added populations and optional services to their Medicaid programs, the federal-state health insurance program for the poor.

The result: State health-care costs are growing at their fastest rate in a decade -- 9% a year, according to the Kaiser Commission on Medicaid and the Uninsured, a Washington, D.C.-based health-policy institute. At the same time, states are struggling with budget shortfalls totaling an estimated $15 billion. And the Urban Institute, a Washington, D.C., think tank, warns that if the nation's unemployment rate rises to, say, 6.5% (a little more than a percentage point), states may have to absorb nearly two million more people into Medicaid.

Congress is currently debating a plan for economic stimulus - which includes measures for providing displaced workers access to health-care. The shortsighted, reactionary approach would be to welcome them into Medicaid.

In her new paper, Why Congress Should Support Private Health Insurance for Displaced Workers, Heritage's Nina Owcharenko writes:

Congress has a unique opportunity, at a time of immediate need, to change federal tax policy governing health insurance coverage. It can give displaced workers the assistance they need to acquire private health insurance for themselves and their families. It would also change the dynamics of current health care policy and establish patient choice and market competition in the provision of health insurance.

However, had the terrorist attacks of September 11 not happened, Congress would still be wise to address what is a changing world for many Americans.

During the economic boom of the late '90s, unemployment was at 4.2 percent; it's lowest level in 29 years. This boom resulted in strong growth, low unemployment, low inflation, high corporate profits and soaring stock prices.

Fed Chairman Alan Greenspan delivered a speech to the 35th Annual Conference on Bank Structure and Competition in Chicago crediting technology as the impetus for the unprecedented boom.

That rise in technology also accelerated the growth of two classes of workers: the self-employed independent contractor and the temp worker. By mid-1999 they comprised more than 25 million workers. The new, flexible economy shattered the old arrangement of spending an entire career with one company.

In this new economy temp workers, or contract employees are usually not given benefits. Workers are left to purchase health care on the individual market, which is usually very expensive ranging from $500 to $700 a month. Most cannot afford too. The self-employed fare slightly better being able to deduct up to 50 percent of their health care costs.

Establishing patient choice and market competition would be a boon to the health-care industry, the economy, and individual rights.

Other signs of a changing labor market:

  1. Union membership has declined to 13.9 percent of the work force in 1998, from 20.1 percent in 1983.
  2. Technology workers, and temp workers, are forming alliances that mirror the unions of old.
  3. The legal system has at least realized the consequences of such a work force. In May 1999, the U.S. 9th Circuit Court of Appeals ruled that a group of temp workers at Microsoft were eligible to participate in the corporate giant's stock plan.
  4. Silicon Valley, despite recent slowdowns, could be a microcosm for the future. Businesses there are outsourcing about 45 percent of their labor force.

Daniel Pink, a former speechwriter for Vice President Gore who now runs FreeAgentNation.com, a hub of information for all types of non-traditional workers, says, "Freedom is a path to security, not a detour from it."

This is a great opportunity. It should not be missed.

For more see two papers by Heritage's Nina Owcharenko:

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