The growing business presence in health care

Last week’s Wal-Mart health care announcement was another step in its progressive image-altering effort (or just a shrewd business move).  It also happens to be a big deal.  And not just on the employer mandate front.  Or on the partnering with a union issue either.  Or how the move increases the likelihood of reform.

It’s a big deal because it signals the rising influence of business in the day-to-day delivery of health care.  From The Wall Street Journal:

The company says it supports the employer mandate because all businesses should share the burden of fixing the health-care system. Wal-Mart also said the mandate will only work if it is accompanied by a government commitment to rein in health-care costs that is guaranteed.

“…all businesses should share the burden of fixing the health-care system.”  Not the burden of paying for health care, but the burden for fixing the system.  Why not?  Health care, on the whole, has proved year after year its ineptitude for fixing itself, its inability to reduce the cost of care, or at the least, prove its increased value.  The annual dollars business spends on health care gives it the right to muddle.  Business needs health care reform.

The second sentence in the WSJ paragraph above is the how: a guaranteed reining in of health care costs.  Whether that’s possible is irrelevant, it’s going to happen.  Reducing reimbursement is a cost cutting mechanism: CMS leads, private payers follow.

Business has efforts in place to improve quality.  Improving efficiency and distribution of resources is a logical next step.  It’s not necessarily a bad thing.  It just is.  (It may even be welcomed.)  The impact on decision making at the delivery level will be significant.

Households pay for health care

Remember, no matter how we “pay” for health care, the money always flows from households.  Greg Mankiw makes an oft-ignored point when he writes that American business’ international competitiveness will not improve should they stop providing health care as a fringe benefit.  He cites the CBO (pdf):

Replacing employment-based health care with a government-run system could reduce employers’ payments for their workers’ insurance, but the amount that they would have to pay in overall compensation would remain essentially unchanged. Even though changes to the health care system could have various effects on the supply of labor, the underlying amount of labor supplied at any given level of compensation would hardly be affected by a change in the health care system. As a result, cash wages and other forms of compensation would have to rise by roughly the amount of the reduction in health benefits for firms to be able to attract the same number and types of workers.

Compensation could take some time to adjust to its market-clearing level (the point at which supply and demand are equal). During that time, firms that formerly provided health benefits—especially firms that employ workers under multiyear contracts—could experience substantial reductions in labor costs, which would boost their profits temporarily. But those firms would experience no permanent change in their competitive status.

Update: Here’s a retort by Ryan Avent.  Economists may say that the amount we spend on health care will be equilibrialized by the competitiveness of the international market.  Job lock is awful, but my feeling is that it is peripheral to the argument.  An employee exodus should make a firm more competitive, save for Darwin working his magic.