The Global Impact of America’s Health Care Debate

Barack Obama’s health-care proposals are meeting strong opposition at home, owing to their potential impact on future fiscal deficits. And, because those deficits are the primary cause of America’s current-account deficit – and thus of global imbalances – the US health-care debate’s outcome will affect governments and investors around the world.

CAMBRIDGE – Since assuming the presidency earlier this year, Barack Obama’s primary legislative focus has been on reforming the financing of American health care. Yet his proposals are meeting strong opposition from fiscally conservative Democrats as well as from Republicans, owing to their potential impact on future fiscal deficits. Because those deficits are the primary cause of America’s current-account deficit – and thus of global imbalances – the health-care debate’s outcome will affect governments and investors around the world.

About 85% of all Americans are now covered by some form of health insurance. All individuals over the age of 65 are eligible to be insured by the federal government through the Medicare program. Low-income families (and those whose income and assets are depleted by high medical costs) are covered by the Medicaid program, which is financed jointly by the states and federal government. Many uninsured get free care in emergency rooms of public and private hospitals and receive free care for chronic conditions in those same institutions.

In the most recent budget, the federal government’s outlays for Medicare in 2010 are projected to be over $500 billion, while Medicaid will cost taxpayers over $250 billion. Private health insurance is generally provided by employers, which is encouraged by treating employer payments for health insurance as a tax-deductible business expense while not including the value of that insurance as taxable income to employees. That rule reduces income and payroll taxes by more than $200 billion.

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