Thursday, March 04, 2010

Another Reason to Reform Health Care: "To Improve Americans' Sense of Security"

As one of his chief arguments for the necessity of health care reform, President Obama has tried to sell the point that the current system is such a major drag on the national economy and the federal budget that improving it is critical to economic recovery and slowing the growth of the national debt.

Not everyone buys it, and opponents charge that the specific plan he is supporting might actually have the reverse impact: i.e., retard economic recovery by increasing the cost of health insurance and increase the nation's indebtedness to pay for more unfunded entitlement programs. Never mind that the Congressional Budget Office disputes those outcomes. The opponents, after all, have never been known to let facts get in their way.

In the middle of all this, a syndicated columnist has just added an important nuance to Obama's economic argument for health reform. In an analysis published March 2nd, the Providence Journal's Froma Harrop suggests that ending Americans' terror at losing their health insurance might just be key to whether or not consumer confidence returns anytime soon.

The nexus she makes between consumers' willingness to spend and their fear of facing serious illness without health insurance may not be immediately obvious. Indeed, I'm not aware of anyone who has made it before. But once the nexus is brought to our attention, the point becomes so self-evident that it's very difficult to ignore.

Harrop launches her conclusion from an unlikely platform: "Americans who shopped till they dropped have stopped. Per capita consumption is down for two straight years, according to Booz & Co.'s new study of U.S. spending behavior. That hasn't happened since the Great Depression."

Booz suggests that the Great Recession has had such a gut-punching impact that, in Harrop's words, it has "changed American spending habits in lasting ways."

No income group has been immune from this change, but the impact is greatest on the middle and lower-income consumers who are the engine of U.S. retail sales. Harrop continues:

"Discretionary spending has fallen in every income group, and the lower the income, the deeper the plunge. More disturbing, though, is the growing pessimism. Only 31 percent of those surveyed said their household's financial status would improve over the next year, while 32 percent thought it would get worse."

So what does all this have to do with health care? Let Harrop make the connection, in her own words:

"As the American economy climbs out of the recessionary pits, the kind of consumer that will emerge with it is becoming evident: not much of one. Only 18 percent of respondents told Booz that they plan to spend on clothing and shoes at pre-recession levels. That leaves over four in five American shoppers saying they won't hit the stores like they used to.

"So Americans' normally sunny outlook has fundamentally changed. The magic pills used to dull the pain of global competition are gone. No more housing bubbles to spin illusions of wealth, no more big loans for the little people, no more charge cards to recent bankrupts.

"The most obvious mood-enhancer is to improve Americans' sense of security. Like so much else that plagues our economy, this should start with health care. The loss of medical coverage remains the perpetual American nightmare. The unemployed can often replace much of their previous income by cobbling together a couple of part-time jobs. But if they lose health coverage along with the full-time position, they're out in the cold."

The argument seems iron-clad, and long overdue. It confirms Obama's argument that economic recovery depends to a large extent on real health care reform--but it adds an important reason that no one has highlighted to date: people are not going to spend on consumer goods when they live in horror of not being able to afford health care. Until that horror is banished, all they can do is save, and pray.

Harrop concludes with an wry contrast between health care security in the U.S. and Canada:

"How interesting that consumer confidence rose in Canada last month, while it fell sharply in the United States. Canadians know that if a family member falls sick, the family won't lose their house to medical bills. They know that a layoff won't leave them uninsured. That's a huge pillow of security.

"The American masses are unlikely to resume their heroic shopping sprees anytime soon (nor would that be desirable). But government policies that ease the terror of personal catastrophe are sure to lift the animal spirits of the American consumer — and that would help the economy a great deal."


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