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Robert Samuelson: Health care rules the labor market

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The American health care system is the most expensive in the world.

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WASHINGTON — It's wages vs. health benefits. On this Labor Day, just about everything seems to be going right for typical American workers, with the glaring and puzzling exception of wage stagnation. The unemployment rate is 3.9 percent, near its lowest since 2000. The number of new jobs exceeds the peak in 2008 by about 11 million. Then there's wage stagnation.

Corrected for inflation, wages are up a scant 2 percent since January 2015, according to the Bureau of Labor Statistics. The gain is roughly one-half of 1 percent annually. Little wonder that many workers feel they're not getting ahead. They aren't.

A strong and growing economy is, by the textbook, supposed to put upward pressure on wages, as companies bid for more workers and employees shop around for higher pay. All sorts of plausible theories have been advanced to explain why this doesn't seem to be happening.

Demographics are cited. Well-paid baby-boom workers are retiring and being replaced by lower-paid millennials; this drags down average wages. Or the Great Recession left workers and employers with psychological scars. Workers are more concerned with job security. They are leery of pressing for big wage increases, just as companies are leery of providing them. Mismeasurement of wages is another theory.

All these explanations may matter, but a major contributor — perhaps the major contributor — may lie elsewhere: health costs. Money once reserved for wage increases is now diverted to pay for employer-provided health insurance. A new study provides stunning estimates: For the bottom 60 percent of U.S. workers, wage gains have been completely wiped out by contributions for employer-provided health insurance.

"For many workers, rising health insurance premiums were eating up every last cent of their pay increases and more," the study said. This affects how "people buy houses, save for retirement, launch their children into adulthood and otherwise try to get ahead in life."

The study focused on full-time, year-round workers from 1980 to 2015. It did not cover people who were unemployed or had government insurance (Medicare, Medicaid and the Affordable Care Act).

Using government data and a private survey from Willis Towers Watson, a consulting firm, the study compared wage and salary income to the cost of fringe benefits (mainly retirement and health benefits).

For the bottom 50 percent of workers, employers' health insurance contributions averaged 30 percent to 35 percent of companies' total compensation packages. Companies also increased the premiums that workers themselves must pay to get coverage. From 1999 to 2015, worker premiums for a family plan more than doubled in inflation-adjusted dollars, from about $2,000 annually to almost $5,000.

As this shows, higher health costs fall heaviest on lower-paid workers. The reason: Insurance coverage is a bigger part of their total compensation (in the example, the $5,000 is 10 percent of income for a worker making $50,000 but only 5 percent for a worker making $100,000).

It's long been known that rapidly rising health costs put downward pressure on workers' wages. But "no one has put the numbers quite like we have … [showing] how it affects stagnant pay and the distribution of pay," said Sylvester Schieber, a retired economist with Willis Towers Watson and a co-author along with Steven Nyce, the firm's research director. The study was also co-sponsored by the Council for Affordable Health Coverage, a business group.

The problem is plain: We'd all like both cheaper health insurance and higher wages; but the way the health care system is operating today, we might get neither. As insurance premiums get more expensive, inflation-adjusted ("real") wages will continue to stagnate or decline.

This might be acceptable if the medical system were delivering better care for all the extra spending. But, as Nyce and Schieber note, the opposite may be the case. They compare the United States with other advanced societies:

"There is considerable evidence we are receiving less in the way of good health care. … We have fewer doctors and fewer doctor visits per capita. We have fewer hospital beds and lower hospital occupancy rates. We undergo more MRI and CT exams, and spend more than twice as much on drugs per capita, on average, than residents of other highly developed countries."

This is obviously a problem that transcends health care. Let's grant much excellence in today's system. Still, its chief flaw is that it is silently determining the nation's priorities without anyone assigning it that role. Medicare and Medicaid spending is squeezing most other government activities — certainly not what we intend. High private insurance premiums condemn millions of workers to stagnant or falling incomes. We recoil at disciplining health spending, because that seems inhumane.

By accident, health care has become labor policy and economic policy. We may all be among the injured.