Tuesday, October 7, 2014
The Wall Street Journal
October 6, 2014
Income Inequality and Rising Health-Care Costs
By Mark J. Warshawsky and Andrew G. Biggs
A new Kaiser Family Foundation survey reports that health-insurance
premiums rose by a "modest" 3% in 2013. Even more modest, however, was
the 2.3% growth of workers' earnings last year. These figures merely
illustrate a long-term trend of rising health costs eating away at
wages. The real story is even more dramatic: Government data show that
health costs are the biggest driver of income inequality in America today.
Most employers pay workers a combination of wages and benefits, the most
important of which is health coverage. Economic theory says that when
employers' costs for benefits like health coverage rise, they will hold
back on salary increases to keep total compensation costs in check.
That's exactly what seems to have happened: Bureau of Labor Statistics
data show that from June 2004 to June 2014 compensation increased by 28%
while employer health-insurance costs rose by 51%. Consequently, average
wages grew by just 24%.
But here's what the news headlines miss: Rising health costs don't
affect every employee the same. An average family health policy today
costs employers nearly $12,000 per year, up from only $4,200 in 1999.
Had employer premiums not risen, average salaries today would be around
$7,800 higher. For a lower-income worker who today makes $30,000, that
could have meant a 26% salary increase. By contrast, a "one percenter"
making $250,000 today would have seen his earnings rise only by 3.1%.
Health costs are a bigger share of total compensation for lower-wage
workers, and so rising health costs hit their salaries the most. The
result is higher income inequality.
These data give us a different perspective on the inequality debate.
Most people think of income inequality as money "redistributed" from the
poor to the rich. In reality, much of what we're seeing is more of
low-income workers' compensation going toward their health benefits and
less ending up in their pockets. That's a different problem and points
toward different solutions.
Comment by Don McCanne
This WSJ opinion article is from the conservative American Enterprise
Institute (AEI). When they say that "health costs are the biggest driver
of income inequality in America today," this should provide us with
common ground to simultaneously address both income inequality and the
health care crisis.
Unfortunately, in this article the authors further define the problem as
over-insurance and a need for high-deductible health plans. Reducing
benefits and increasing cost sharing would make the problems even worse
for low- and moderate-income individuals and families.
Nevertheless we can agree that the current inequities in health care
financing - which were inadequately addressed through the Affordable
Care Act - are a significant contributor to income inequality. The most
effective solution to address both would be to enact a
progressively-financed single payer national health program (though
further public policies would be required to temper the extremes of
income and wealth inequality).
There is a glimmer of hope when the opponents of single payer recognize
the problems, but that hope is dashed when they revert to ideological
approaches that place an even greater burden on those more vulnerable.
at 11:13 AM