Health Care Costs Jobs?

In the never-ending attempt to find even more excuses why Bush’s ‘recovery’ isn’t providing more jobs, the NYT locates the blame on rising health care costs. In this case, they may have a point.

By EDUARDO PORTER

Published: NYT, August 19, 2004

A relentless rise in the cost of employee health insurance has become a significant factor in the employment slump, as the labor market adds only a trickle of new jobs each month despite nearly three years of uninterrupted economic growth.

Government data, industry surveys and interviews with employers big and small indicate that many businesses remain reluctant to hire full-time employees because health insurance, which now costs the nation’s employers an average of about $3,000 a year for each worker, has become one of the fastest-growing costs for companies. Health premiums are sapping corporate balance sheets even more than the rising cost of energy.

In the second quarter, the cost of health benefits rose at a 12-month rate of 8.1 percent – more than three times the inflation rate and the rate of increases in wages and salaries.

“Health care is a major reason why employment growth has been so sluggish,” said Sung Won Sohn, the chief economist at Wells Fargo.

Although the economy emerged from recession long ago, posting 11 straight quarters of growth, there are still about a million fewer jobs in the United States than there were at the beginning of 2001, just before the country sank into recession.

A spurt in job growth between March and May raised hopes that employment would emerge from the doldrums. But job growth slowed sharply again in June and came to a virtual standstill last month. In July, businesses added a mere 32,000 jobs, and for the first time this year more businesses let workers go than hired new ones.

Because of the cost of health insurance, “we are making decisions not to hire people,” said Steve Hayes, the owner of Custom Electronics in Falmouth, Me., which installs electronic systems like home theaters and communications networks in homes and offices. “Before, we hired based on workload,” he added. “Now it’s a question of affordability.”

Mr. Hayes said his health insurance premiums had risen by 22 percent a year in the last four years. He now pays $4,150 a month in health insurance premiums for his 33 employees, and the workers contribute an equal amount from their own pockets. The company’s revenue – less than $5 million annually – has been growing briskly, he said, but outlays for health benefits are growing even faster, eating into the company’s profits.

The increase in health insurance premiums reflects the rising cost of health care, which is being driven by expensive new drugs, many of them heavily advertised to consumers; medical advances including diagnostic tests that require costly new machines; and a reaction to past restrictions in managed care health plans that sought to rein in costs.

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