Saturday, June 6, 2009

Klein on Healthcare

Ezra Klein brings us this interesting thought on the costs of (private) healthcare in the US:

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.

The graph is illuminating in that very few studies of the last twenty years or so have factored in the costs of employer-sponsored health insurance in the compensation totals in this way: too many have focused on the direct wage component. By incorporating the expenditure on healthcare in the total compensation calculation, the study highlights both how US payrolls are at once over- and under- valued: overvalued in that total compensation has increased substantially over the observed period which makes a good case for the expense of the US worker, undervalued in that so much of the compensation is being consumed by the healthcare system.

I for one doubt strongly that anyone now making $50,000 thinks that his/her healthcare should cost $15,000 of that annually, nor would anyone making $35,000 be sanguine knowing roughly half again his/her salary goes toward healthcare, yet this is (roughly) the cost of those programmes camouflaged by the employer's contribution to the system. If the analysis is at all accurate then the trend needs to be stopped before healthcare costs equal the wage component of the compensation pie.

This is an arithmetic that merits far greater attention - particularly as the healthcare debate continues in the Capital.

H/T Andrew Sullivan.

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