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Blogging the CEA Health Care Report: Why Workers Aren't Angrier About Health Care

Here's a counterintuitive thought: Health care reform is a pretty big issue in the United States. Arguably the biggest domestic issue there is. But it's a much smaller issue than it should be.

That's not meant as a normative statement. It's meant as an introduction to this graph from the Council of Economic Advisers' health care report. The top line -- the solid one going up and up and up -- is projected total worker compensation. The full amount employers pay for wages, benefits, and so forth. The second line -- the dashed line slumping down -- is compensation minus health care costs. That's pretty much what workers see in their paycheck.


The mechanism here is simple enough. As the report says, "Since health insurance premiums are growing more rapidly than total compensation in percentage terms, an increasing share of total compensation that a worker receives goes to cover health insurance premiums."

But workers don't see it that way. That slumping line isn't normally called wages-minus-health-premiums. It's called wages. And most workers think stagnant wages mean their employer is paying them less. They don't know that the main reason for stagnant wages is that their wage increases are going to pay for their health insurance premiums. If they did -- if they realized that compensation is pretty much a zero-sum endeavor and their employers don't so much buy them health insurance as garnish their wages to pay for their health insurance -- you'd probably see a lot more general anger at rising health care costs.

For read my summary post on the Council of Economic Advisers report, click here. For a more technical version of this argument, see this paper by Ezekiel Emanuel (who's now at the OMB) and Victor Fuchs.

By Ezra Klein  |  June 2, 2009; 1:00 PM ET
Categories:  Health Economics , Health Reform  
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To be fair, I think that there are plenty of people in the labor movement who know this is going on. Outside of there, yah, most people aren't aware of the impact of health care on stagnant wages.

Posted by: StevenAttewell | June 2, 2009 2:57 PM | Report abuse

From this graph alone the argument is a bit weak. I'm sure it is made more strongly elsewhere (I haven't read the articles to which you link).

In the graph, there is that vertical line marking the past from the present. The past (to the extent it is shown) doesn't look too bad, at least until a few years ago. The lines are nearly parallel before then.

The future looks horrible. (Even still, it isn't so horrible until out past 2020 or so when wages really flatten and then fall.) But you can't expect US workers to react to the future.

Posted by: TheIncidentalEconomist | June 2, 2009 3:01 PM | Report abuse

Not digging this chart, actually. Seems a little "fuzzy math-ish" to me. The biggest disparity in total compensation and wages occurs in the future, so blaming today's stagnant wages on health care costs is not really supported by this particular chart.

It has been my experience as a freelancer who self-pays for health insurance that most people employed by large companies do not have A CLUE how much their health benefits really cost. However, your chart makes it look like (though not completely clear) that wages were stagnant even before the predicted rise in health care costs.

And it looks to me that the predicted astronomical increases in health care costs will bankrupt the entire country in a matter of time. No company can continue to afford to cover these increases and remain competitive in a global market. No labor pool can survive inflation and rising prices when real wages remain stagnant.

The chart also ignores Bush's push for "consumer driven" health care. The grumblings I hear from people employed in large companies is about having to pay more for their own health care - the chart does not show what kind of bite this takes out of workers' salaries.

As an aside - I know A LOT of people who are working at large companies not necessarily for the wages, but for the health insurance - because, as I know all too well, self-insuring is exceptionally pricey - if you're lucky enough to get on a plan.

Posted by: anne3 | June 2, 2009 4:05 PM | Report abuse

I guess I simply do not believe the graph. If I understand it, it contradicts computations made by Uwe Reinhardt among others.

First of all you quote,"Since health insurance premiums are growing more rapidly than total compensation in percentage terms, an increasing share of total compensation that a worker receives goes to cover health insurance premiums."

But that can be true and the amount left over can still grow. Example: I earn $100 and pay 10% for health insurance. Suppose after x years, the insurance has gone up 100% to $20, but your income has only gone up 50% to $150, i.e. the insurance has grown twice as fast as your income. Now your insurance has gone up from 10% of your income to 13.3%, BUT the amount you have left over after paying your health insurance has gone from $90 to $130, a 44% increase, i.e. you have 44% more to spend on stuff. (BTW I assuming all this is in constant dollars).

Now I admit your graph appears to say this doesn't happen so I guess that hidden behind that graph are a set of assumptions (i.e. guesses) that differ from what Uwe and I are using

Posted by: lensch | June 2, 2009 9:14 PM | Report abuse

>>They don't know that the main reason for stagnant wages is that their wage increases are going to pay for their health insurance premiums.<<

The usual out of touch with labor crock. Average WAGES grew 20% over the last 40 years as average income grew 100%. As much as 25% of labor is earning below 1968's minimum wage for God's sake! It did not happen in Europe where labor makes use of the vote to regulate its labor market to work for labor as much as ownership.

Be nice if our progressive elite one day woke up to American labor's truly supine position -- so it in turn could wake up American labor. The biggest domestic issue most people personally face -- especially the unfortunate generation to come that never saw anything promising in their short economic lives -- is the terrible American labor market.

Posted by: DenisDrew | June 2, 2009 10:11 PM | Report abuse

But as long as employer provided health insurance has a tax advantage over individually purchased plans then your still better off receiving the employer-provided health insurance as a portion of your compensation.

You know health insurance companies are making only 3 cents on every dollar spent on health care so I don't see how the Government assuming their role is going to really bring down costs. Perhaps they should pay a little more attention to the 97 cents.

Do you really think the higher taxes and inevitable gross failure of a Government system will be any cheaper?

I think the fundamental problem with health care is that it is not consumer oriented. If you really want to bring down costs then empower consumers to mercilessly pursue the best bargain. Politicians and regulators have proven time and again that they aren't good at that. Any Government oriented "reform" would be a great leap forward.

Posted by: fallsmeadjc | June 2, 2009 10:46 PM | Report abuse

fallsmeadjc - Yeah, but they are wasting much more than that. About $150 Billion each year on overhead (as compared to single payer) and about $250 Billion on forcing physicians to fill out zillions of forms. Add to that about another $100 Billion Big Pharma wastes on "marketing", and you've got enough money to give everyone Super Medicare without spending any more than we are now spending.

Posted by: lensch | June 2, 2009 11:14 PM | Report abuse

Ill tell you why workers in the U.S.arent more angry about healthcare,They are used to being abused.For 30 years companies have been destroying unions stealing pensions and getting large concessions in exchange for their jobs.Our industrial base and technology has been moved to slave wage countries and our workers are told they are expected to compete with those prices.I grew up in a family where my father worked and mother could stay home.They purchaced their first home for
18k.He had healthcare and a pension.Those days are gone and they are not coming back.Why arent workers more angry about that?They feel lucky to have a job thats why.You cant get angry when your scared.

Posted by: truthynesslover | June 6, 2009 2:00 PM | Report abuse

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