Could the Affordable Care Act Make the U.S. More Competitive Abroad?
Recent debates about the Trans-Pacific Partnership got us thinking about how the Affordable Care Act (ACA) might affect U.S. competitiveness abroad. The connection is stronger than you might expect.
Our competitiveness in global trade, of course, depends on the relative cost and quality of the goods our businesses export. This is influenced by numerous factors, some of which are likely to be much more important than the ACA. For example, the strength of the U.S. dollar has raised the effective price of U.S. products overseas and undercut their sale in recent years.
But there are several ways in which the ACA could influence U.S. competitiveness.
First, working-age Americans are sicker and die younger than citizens in many other developed countries. This health disadvantage translates into a competitive disadvantage, as there is a well-documented relationship between workers’ health status and their productivity. The annual economic losses from diabetes and depression alone are estimated to exceed $100 billion.
The ACA could significantly improve the U.S. workforce’s overall health. Insurance expansions have been shown to improve beneficiaries’ health and raise their future earnings. Since the main coverage provisions of the law took effect, 12 million to 17 million working-age adults have gained health insurance. In addition, the ACA has stimulated a wave of innovations in health care, many focused on the things that keep us well, like prevention, telehealth, and promoting healthy lifestyles and living environments. To the extent that these succeed, the benefits will be felt in workforce productivity and business competitiveness.
Second, taming our nation’s astronomical health care bill would further improve our ability to compete in foreign markets. We spend more on health care than any other wealthy country—health spending represents nearly one-fifth of the U.S. economy, compared with one-tenth in the average industrialized nation. This leaves fewer resources available for research, infrastructure, education, and other investments that are foundational to economic competitiveness. Warren Buffett went so far as to call our health system “the tapeworm, essentially, of the American economy.”
In recent years, health care spending has grown at historically low rates. Some believe the ACA has played a role, though the jury is still out. If the spending slowdown lasts, however, the long-term prospects for U.S. competitiveness are considerably brighter.
Third, the ACA marketplaces created a functional health insurance market for people buying health insurance on their own, weakening the link between employment and coverage. This promotes entrepreneurship, by allowing workers to leave jobs and start their own businesses without losing their insurance. The resulting start-ups could grow over time into the cutting-edge companies that so enhance U.S. competitiveness. It’s possible that this is already occurring. Rates of entrepreneurship and business creation have risen over the past year, and while this is most likely the result of generally favorable economic conditions, the ACA policies support this type of growth.
Some people argue that aspects of the ACA weaken our competitiveness by imposing new costs on U.S. businesses. These fears are likely exaggerated.
For starters, not all businesses sell in foreign markets. Three of the largest exporting sectors in the U.S. are manufacturing, mining, and agriculture. Manufacturers and mining companies already tend to offer job-based insurance, and are therefore untouched by most provisions of the law (Exhibit 1). Thus, the price of these exports should not be seriously affected by the ACA.
When and if the ACA’s so-called employer mandate goes into effect (applying to companies with 50 or more employees), some agriculture businesses could face additional short-term expenses related to purchasing health insurance for their employees. Over the longer term, economists predict these costs will be absorbed by workers in the form of reduced wages and other benefits, which could moderate adverse effects on competitiveness. And, in the short term, the agricultural industry does not appear to be suffering, and has in fact created jobs at a faster clip than the rest of the U.S. economy since the ACA became law (Exhibit 2).
Whether, and how, the ACA affects the international competitiveness of the U.S. economy remains to be seen. But it is essential to remember the original rationale for health reform. The problems plaguing our health system are felt beyond the hospital and clinic, and affect many other aspects of our standard of living. Whatever one thinks of the ACA, U.S. competitiveness would surely benefit from a smarter, stronger health care system.