Will We Be Better Off?

June 14, 2010 - 10:59

When spring started, the air was filled with anticipation of the pent-up consumer demand that was about to be unleashed. Two-thirds of growers responding to industry surveys indicated that business was “OK” or better (16 percent said it was good or excellent). Newly passed health care legislation, which so many growers have been wary of, could not put a damper on spirits.

After three very disappointing Easter periods the past few years with record cold and snow, retailers were given a golden egg over the holiday weekend (the most important period in Q1 and the traditional kickoff to outdoor gardening for folks north of the Mason-Dixon Line). The weather was nothing short of exceptional! The Northeast had the most ideal conditions: This year was the warmest and driest Easter weekend in more than 20 years. The last time Easter weather was close to this was in 2006, when 1,543 record high temperatures were set across the country. But this year was even better.

However, the most monumental kick off to spring was the signing of the Patient Protection and Affordable Care Act. The bill creates a publicly financed, privately delivered, universal health care system that uses the pre-existing Medicare program and extends it to all U.S. residents. The stated goal of the legislation is to ensure that all Americans will have access — guaranteed by law — to the highest-quality and most cost-effective health care services, regardless of their employment, income or health care status.

Starting in 2014, large businesses (more than 50 full-time equivalent workers, not counting seasonal) with employees who receive taxpayer-funded health assistance will pay an assessment to help offset the cost of those subsidies to the American taxpayer. Companies whose employees are receiving taxpayer assistance will have to pay $2,000 per full-time worker. The first 30 workers would be subtracted from the total when calculating the total amount of the assessment. It is estimated that fewer than 2 percent of large businesses will be likely to pay these penalties. The bill also will require employers with more than 200 employees to automatically enroll employees into health insurance plans offered by the employer. Employees may opt out of coverage. What we don’t know are the finer details: What will be the minimum standards required in health care plans for employees? What constitutes a “full-time” employee? Will the penalties create a disincentive for not offering health care coverage?

The Economic Impact
Most economists expect that there will be little near-term impact on the economic outlook from the passage of the health care bill. Most of the changes proposed in the bill do not take effect until 2013-2014, meaning that the impact will happen more in the medium term. But some have suggested that we could see some near-term impact in labor markets. The requirements for larger firms (over 50 employees) to provide their employees health insurance or pay a fine would effectively increase the cost of hiring, potentially resulting in fewer new hires. However, larger firms are also much more likely to offer health insurance already for their employees — more than 95 percent of firms with more than 50 employees offered health insurance lastyear — so the effect from this policy is expected to be limited.

Without a doubt, the health care reform package will increase demand for medical services. Not much surprise there. Because anyone will be able to buy insurance without financial limitations or blocks caused by pre-existing conditions, demand for medical services will increase.

The real question is how fast supply of those services can respond. The health care reform bill has only a few provisions that will increase supply. There are some efforts to shift available supply to rural areas, and to encourage nurses to go into nursing education. Generally, however, don’t expect an increase in the supply of health care professionals within the next five years. Beyond that, it’s doubtful there will be increases.

So what happens if demand is up but supply cannot rise in the short-term? Hospitals and clinics bid up the wages of nurses, technicians and doctors. They can afford to do so because they are more often reimbursed for their services, thanks to the insurance reforms. The price tags on medical procedures have to rise. But many prices of health care services are set not by the market but by the government through reimbursement rates. They may not react to supply and demand.

So what happens in situations where prices cannot adjust to limit demand and induce more supply? Shortages occur. Many people who are used to getting care on a prompt basis will find themselves crowded out by the newly insured. Nobody will be denied care outright, but waiting times for appointments and procedures will increase. Providers may begin to limit procedures to manage access to care. It’s not the cold-hearted denial of access for monetary reasons; it’s the warm-hearted denial of access to allow someone else to be served. In the short run, your employees may well feel that they are getting inferior service from the providers available from the company health care plan. That will happen even as you have to push some of your insurance costs on to your workers.

The long-run impact of the health care bill as it stands now will depend largely on its impact on the federal budget deficit. The concern is that the forecasted revenue increases and cost savings in the bill will prove optimistic, resulting in an increase in an already unsustainably large budget deficit. In addition to raising borrowing costs and acting as a drag on private investment, this budget deficit would eventually require contractionary fiscal policy with some combination of rising taxes and/or declining expenditures. Sizing the net impact will largely hinge on assessing how much so-called “efficiency gains” could offset the fiscal drag.

My basic opinion was that health reform was needed (few dispute this) and the reform package greatly increases coverage in the United States. What it doesn’t do, however, is control cost. If f urther steps are not taken in the future, health insurance will take up a larger and larger share of paychecks, either through increased employer premiums or increased taxes, or both.

In the end, will we be better off? Time will tell. Until then, we need to keep our eye on the ball. By continuing to emphasize in the value proposition of our respective businesses the human health, ecological and economic benefits of maintaining flowers in our home interiors and landscapes, we will do our part in ensuring a more healthy and vigorous society! We are part of the answer to America’s health care dilemmas; let’s just be sure to remind Americans of that…

About The Author

Charlie Hall is Ellison Chair in International Floriculture in Texas A&M University’s department of horticulture. He can be reached at charliehall@tamu.edu.

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