Health Care Crowds Out Other Worker Compensation

Today’s Labor Day Managing Health Care Cost Indicator is 170%

I show this slide a lot; it's from the Kaiser Family Foundation, and shows how the cost of health care premiums have increased more dramatically than either overall inflation or worker income.  I point out that worker productivity has increased.  The increased value of labor, though, has been largely absorbed by the increased cost of health care. Hence, most people don’t feel like they have improved their income much or even at all over the last few decades-- and they're right 

Source.  Click Image to Enlarge

My colleague Steve Nyce has coauthored a white paper “Treating our Ills and Killing our Prospects,” highlighting research he has done into the broader social consequences of the high rate of inflation in health care costs.

One of the interesting analyses he has performed is to show how the increased cost of health care differentially affects those in the lower earning deciles.  Essentially, the high trend rate of health care costs eats up only a small portion of income for high income workers, while the high trend rate sometimes accounts for more than 100% of gain in compensation for low-wage workers.   In fact, the projections of health care cost increase suggest that health care will account for 170% of potential compensation increases for those with the lowest 10% of income from 2009-2030!

 Click Image to Enlarge

Rapidly escalating health care premium costs contribute to the increasing disparity between rich and poor.

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Health Care Crowd Out

Today’s Managing Health Care Costs Indicator is

$30 billion

Peter Orszag, most recently the head of Obama's Office of Management and Budget, has a column in today's New York Times  demonstrating that increasing costs of health care have a substantial impact on other social priorities.

He reports research that shows that in 1985 states spent 50% more on higher education than on Medicaid, and the ratio has now flipped. During this time period, 43 states have cut their support for higher education, and salaries for academics at public universities have slide well behind those at private universities.   Public universities represented 40% of the top ranked colleges a quarter century ago.  Now, they represent 12%.

If state colleges and universities were being supported at the rate they were supported in 1985, higher education would be getting $30 billion more in state aid a year ($2000 per student.)

Orszag concludes that controlling health care costs might be the best way to improve post-secondary education in America.

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Should teachers support repeal of health care reform?

 Nebraska’s (Republican) Governor Dave Heineman is on the mark when he points out that costs of health care “crowd out” other important social needs. That’s the reason why it is so important to decrease the rate of medical inflation.

Here is his quote: 

"Increased funding for Medicaid is likely to result in less funding for education," Heineman says in the letter sent Wednesday to associations representing teachers, school boards and school administrators. "Don't sit on the sidelines," it says later. "I strongly urge you to support the repeal of the recently enacted federal health care law."

Is Heineman right that school committees in Nebraska should fear the health care reform act?

The Kaiser Family Foundation  has calculated how much each state will spend to comply with health care reform (largely Medicaid expansion), and how much new federal money will come into the state.  In the case of Nebraska, KFF projects that the state would spend $106 million from 2014-2019, the federal government will spend over $2.3 billion, or over 95% of the total new spending.  This $2.3 billion will lead to new jobs – and with a 6.84% income tax, the increased income tax alone would equal the cost of the state Medicaid outlays as long as 2/3 of the spending is on salaries. That’s not counting a “multiplier” effect where one person’s new income leads to increased incomes for everyone from whom she purchases goods or services, and it’s not considering state sales tax of 5.5%.

Across the country, most analysts believe health care reform will increase the cost of overall health care by a very modest amount.   The reform bill also includes some serious cost control, including cuts in payments to Medicare Advantage health plans, cuts to providers, funding for comparative effectiveness research, and a Medicare innovation center.  The answer to health care crowding out other important social services isn’t repealing health care reform, but building on it.   Teachers should not be on the picket lines pushing for repeal.

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