COST: Rising health care costs cut take-home pay

On the front page of Monday’s Washington Post Michael Fletcher reported two salient facts. One, the Census Bureau estimates that real (inflation-adjusted) median family income has fallen 2.6%, or a bit more than $1000, since 2000. Two, the Bureau of Labor Statistics reported that as of December 2007, benefits now comprise 30% of total compensation, up from 27.4% in 2000.

Fletcher’s piece attributes the decline in net income to an increasingly vivid tradeoff between wages and employer contributions to employee health insurance, and cites many examples to buttress his point. Firms certainly do try to match total compensation – wages plus benefits -- with worker productivity, and if health care costs keep growing faster than everything else, it makes sense that wage and income growth must suffer as a result.

But what few seem to have noticed is that even if you count employer premium contributions as part of employee income (as most economists argue you should), family health insurance premiums have risen to 17% of median family income (using 2006 data, the latest available), up from 7% in 1987.

In other words, the fundamental problem which employees and employers face together is that health care cost growth exceeds economy-wide productivity growth by large margins, and has for some time.

This core fact means that something has to give. We would contend (and will in increasing detail in the weeks and months to come) that “something” includes wage growth, investment funds, profits, the international competitiveness of many US corporations, and, ultimately, middle class jobs. Excess health care cost growth is why some employers are reducing the generosity of health benefits or declining to offer health insurance altogether (the Post story gives some real life examples), why more workers are declining their employers' increasingly expensive offers, and why the percentage of uninsured rises with health care cost growth. Thus, we cannot solve the uninsured problem until we solve the excess cost growth problem. We have argued before (and will again) that we also cannot solve the cost problem until we get everyone covered and into a far more efficient and sustainable health care delivery system. Thus, our core problems of cost and coverage are linked and must be attacked simultaneously with comprehensive reform strategies.