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WHAT THE HEALTH CARE VOTE MAY MEAN FOR U.S. GROWTH

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With the Senate having voted Tuesday to open debate on repealing and replacing Obamacare exactly how is yet to be determined, here’s still another possible repercussion from that effort: A hit to the U.S. economy.

If the Republican efforts to replace the Affordable Care Act fail and the exchanges are left to twist in the wind, it’s likely the U.S. will see a potential decline in health care consumption, said Paul Ashworth, chief U.S. economist at Capital Economics. In a recent report, he said that “could conceivably become a significant drag on GDP growth next year.”

It also casts even more doubt on the Trump administration’s rosy predictions of 3 percent GDP growth next year. That estimate has already been met with plenty of skepticism even without the prospect of taking health insurance away from as many as 30 million people by 2026.

The U.S. potential economic growth rate has been declining from an average of over 3 percent in the 1990s to between 1.5 percent and 2 percent in the 2010s, according to Jeremy Lawson, chief economist at asset management firm Standard Life Investments. He believes short-term future growth is unlikely to return to previous highs without an acceleration of structural reforms well beyond health care.

If Obamacare is repealed with no replacement, the result would be an estimated $417 billion decline in the budget deficit over a 10-year period, according to the Congressional Budget Office analysis. That would have a modest impact on GDP growth, said Lawson. But that estimate assumes no Obamacare replacement whatsoever is implemented, which is unlikely to happen over a decade.

Both the Senate and House versions of replacement would restrict Medicaid spending and reduce the number of insured people by about 20 million. “Both plans would have a more modest negative effect on the economy than just repeal,” Lawson predicted. But because the plans would likely reduce access to health insurance, you may see more personal bankruptcies and other disruptive economic impacts, Lawson said.

It’s also important to look at health care’s impact on the U.S. economy in terms of productivity, Lawson explained. Health care spending accounts for 18 percent of total U.S. GDP, a much higher percentage than in most other world economies. A lot of that spending is inefficient because individuals, especially those with employer-sponsored insurance, and the health care industry itself don’t have incentives to make health care a more cost-efficient and thus productive system.

As health care spending continues to grow more quickly than the rest of the economy, Lawson explained, it squeezes out potential spending in other, more efficient sectors, which would in turn help boost overall economic growth. He added: “One could argue inefficient health care systems are holding back the U.S. economy over the long term.”

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