Rising benefit costs do not equal rising worker pay
When you look at worker compensation stats for recent years (and decades), pay increases look better than they should because of the rising cost of health care. For those of us who are employed and have employer-provided health insurance, the medical plan is counted as part of our compensation. Because health-care costs and therefore health-insurance costs are soaring, the Labor Department says that that portion of our compensation is also soaring. Even though our cash raises haven't been that great, our overall "pay" has been rising at a moderate clip because of health inflation.
Do out-of-control health-care costs feel like a pay raise to you? Didn't think so. Most of us are not better off because of health inflation. True, medicine is improving and making people healthier. But not nearly at the same rate that its costs are going up. WindyAnalysis has the goods:
So just because health-care benefit costs have been rising, pushing up total employer costs, does not mean that real wages, including benefits have been increasing. And if you take into account that defined benefit pensions were common in the past, whereas they are virtually non-existent in the private sector, then there is no reason to believe that benefits, in real terms, have been increasing. If anything, previous generations received more benefits, but the cost of those benefits, particularly in terms of pension plans and medical plans for retirees, are only being realized now.
HT Marginal Revolution.
Comments
Good point. But, if your employer didn't pay for those increased costs, then it would feel like a pay increase.
It seems your point assumes an entitlement to those health benefits no matter what happens to the costs -which just isn't true. Your employer doesn't have to provide those benefits.
At my current job, I don't have health benefits or a 401K. Hence if the boss gave me more money to cover higher healthcare costs, it would be a real raise.
So I think it's just a matter of perspective.
Posted by: V | June 15, 2011 10:48 AM
I've been on this point before, but...
Employers and employment status need to be removed from the question altogether.
Until then... I propose that the benefits (ALL benefits) that employers offer as part of the package be taxed at even greater rates than the wage income itself. How about 150% more than wages?
Think employee's with good benefit packages would like that?
Posted by: MrRational | June 15, 2011 11:01 AM
Mr.Rational's proposal is warped. Right now, there is a tax benefit to the employer -- not the employee -- for offering those benefits.
And in many cases, if regulation was simply adjusted (forget elimination -- just adjustment), the costs of health benefits could be cheaper for the individual to purchase on their own.
Case in point: Contingent II Contract employees with the state of Maryland are eligible for a health insurance "subsidy" as part of their compensation. Its added to their checks and taxed as income, then they have to pay the state directly for the full cost of their insurance benefits. And frankly, because of the aging nature of the employee pool, most younger workers could buy their insurance cheaper on the open market.
So you are right... remove the employer incentive, and replace it with an individual incentive to purchase those benefits on their own... and you will see cash compensation rise...
But there is no need to overtax those expenditures as suggested.
Posted by: Gunpowder Chronicle | June 15, 2011 12:27 PM
My health insurance premium went up so steeply last year, that I had to switch to a cheaper plan with less coverage and higher co-pays. Now my company (and myself) is paying almost 40% more for less coverage. It certaintly does not feel like a pay raise.
Posted by: Eric P | June 15, 2011 12:30 PM
Health care costs keep going up because of "our" obscene for-profit system. Switching to a single payer system is the only way to reverse this trend.
Posted by: Henry | June 15, 2011 1:28 PM
Gunpowder the only way change happens (it seems) is in response to cutting or eliminating a tax associated with it.
My suggestion (somewhat tongue in cheek) is intended to short circuit the intermediate drama.
But it wasn't entirely tongue in cheek as employer paid benefits in lieu of direct wages, and certainly above a certain income level, distort the market more than they benefit the market.
Posted by: MrRational | June 15, 2011 3:18 PM
Is it our obscene for profit system? Or is it because a multitude of entry barriers turn the medical profession into a state-sponsored cartel that limits supply at the exact same time demographics are increasing demand?
Anyway you cut it, such a pay increase would be a nominal pay increase only that gets zeroed out when adjusting into real terms.
Posted by: Josh Dowlut | June 15, 2011 3:18 PM
MrRational,
I don't disagree with your rationale that employer paid benefits in lieu of direct wages distort the market... in fact, I think you have uncovered a great corrupting influence here.
Government employment would not be nearly so attractive but for the benefits provided.
And I see your point about forcing the tax increase to discourage the behavior, but I have a visceral reaction to using tax policy to evoke behavior (another market-distorting issue).
Of course, none of this solves the real problem around health care COSTS, which are different from health insurance COSTS... and that is the fact that we insure stupid stuff at the expense of important stuff. We should be insuring the "major medical" issues -- major disease and morbidity events, crises, and long term care. We should not insure "maintenance".
Posted by: Gunpowder Chronicle | June 15, 2011 4:51 PM
So as I say, I wake up every morning, thankful that I have exceptional health insurance coverage I found through "Penny Health Insurance" for my family because it gives me peace of mind knowing that my family can count on me to deliver their health care needs.
Posted by: mollymendoza | June 16, 2011 7:20 AM