Do health benefits reduce wages?
The Mandate Wars, In California And Beyond
By Rick Kronick
Health Affairs Blog
March 6, 2008
Unfortunately, analysis of purchasing behavior provides two diametrically opposed views of affordability. On the one hand, most moderate-income workers (people in families between 300 percent and 400 percent of FPL) have employer-sponsored insurance. On the other hand, hardly anyone without employer-sponsored insurance at 300 percent to 400 percent of FPL chooses to purchase non-group coverage.
There are many reasons that most moderate-income workers are covered by insurance, while hardly any moderate-income who are not covered by employer-sponsored insurance choose to purchase coverage on their own. These reasons include: the fact that non-group insurance is a much less good buy than group coverage; the fact that people with health problems often cannot buy non-group coverage at any price; differences in tax treatment (although premiums are fully deductible for the self-employed, and relatively few self-employed purchase coverage, so tax treatment is far from the whole story); and the possibility of self-selection in which people who most value insurance manage to find jobs that offer coverage. Part of the difference is no doubt due to confusion about who is really paying the bill — although most economists would swear that employer contributions to insurance are really paid for by workers in the form of foregone wages, the very high coverage rates for moderate income workers suggests that many economists swear too much. Regardless of the reasons for the difference, the very high coverage rates for moderate-income workers and the very low purchase rates among moderate-income workers who do not have employer sponsored insurance provide diametrically opposed views of affordability, and complicate the discussion about the level of income at which a person can fully afford insurance.
http://healthaffairs.org/blog/2008/03/06/the-mandate-wars-in-california-and-beyond/
And…
Who Really Pays for Health Care?
The Myth of “Shared Responsibility”
By Ezekiel J. Emanuel, MD, PhD; Victor R. Fuchs, PhD
JAMA
March 5, 2008
When asked who pays for health care in the United States, the usual answer is “employers, government, and individuals.” Most Americans believe that employers pay the bulk of workers’ premiums and that governments pay for Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), and other programs.
However, this is incorrect. Employers do not bear the cost of employment-based insurance; workers and households pay for health insurance through lower wages and higher prices. Moreover, government has no source of funds other than taxes or borrowing to pay for health care.
With prominent politicians, business leaders, and experts supporting shared responsibility, it is hardly surprising that most Americans believe that employers really bear most of the cost of health insurance.
Shared responsibility is a myth.
This is not a point merely of economic theory but of historical fact. Consider changes in health insurance premiums, wages, and corporate profits over the last 30 years. Premiums have increased by about 300% after adjustment for inflation. Corporate profits per employee have flourished, with inflation-adjusted increases of 150% before taxes and 200% after taxes. By contrast, average hourly earnings of workers in private nonagricultural industries have been stagnant, actually decreasing by 4% after adjustment for inflation. Rather than coming out of corporate profits, the increasing cost of health care has resulted in relatively flat real wages for 30 years. That is the health care cost—wage trade-off.
http://jama.ama-assn.org/cgi/content/full/299/9/1057
Comment:
By Don McCanne, MD
Everyone agrees that health benefits provided by the employer are part of the employee compensation package. And there is considerable evidence that employees do accept lower wages in order to be able to participate in the employer’s health benefits program.
Yet when employees are left on their own to secure their health insurance, they do not purchase it. Rick Kronick lists several reasons for this, but the most important is that the premiums for private insurance coverage siphon off too much out of the family budget, creating problems for funding other essentials such as food, housing, and transportation. Those receiving employer-sponsored coverage do not have to include a decision about potential health care costs in their budgeting decisions.
Should all employees be granted higher wages in return for accepting the responsibility of purchasing their own health coverage? Perhaps we should ask that question in a somewhat analogous situation. Should retirees be allowed to decline Medicare coverage in order to increase their very modest Social Security benefits?
No. Everyone should have affordable access to reasonably comprehensive health care services, regardless of income.
There is a very important reason to acknowledge that health benefits are a part of the employee’s compensation. Most policy analysts believe that health care costs over 10 percent of an individual’s total income constitute a financial hardship. The premium for employer-sponsored family coverage now averages over $12,000. That means that the family income needs to be $120,000, just to pay the premium. If the family also has medical needs, the out-of-pocket expenses would require an even larger income.
Both the Republican and Democratic proposals call for making health insurance affordable through a system of tax subsidies. But all proposals fall far short on the estimates of the amount of tax funds that would be required, for two reasons. The first is that the subsidies will have to be much larger if financial hardship is to be avoided. The second is that the target population that would need to receive graduated subsidies is much larger; it includes not only low-income individuals, but also the entire middle-income population, extending into the higher-income sector.
It is simply not rational to build reform on the obsolete model of private health plans. At $2.4 trillion, we already have enough funds to pay for comprehensive care for everyone. We simply need to establish a single risk pool that is equitably funded through the tax system, and then use that to pay for care for everyone.
(Because of other commitments, there will be no qotd messages for the next two weeks.)