The worker's eroding paycheck pays for health

Health insurance premiums rose 78% between 2001 and 2007, increasing families' concerns about health care costs in America. Overall inflation grew 17% in this period. A new report from Kaiser Family Foundation (KFF), Wages and Benefits: A Long-Term View, sheds more light on health insurance cost trends, revealing an increasingly difficult scenario for average American families...even affluent ones.

The figure on the right illustrates that the total amount spent by employers on group health insurance policies from 1960 to 2006 increased more than 20x from $23 billion in 1960 to $537 billion in 2006.

[I note parenthetically that the GDP was $13.21 trillion in 2006, and $526 billion in 1960; an increase of 2,508%. This calculates to 2,234% increase in health insurance spending by employers, during an interval when the economy grew by 2,508%. Data for this calculation was drawn from the Centers for Medicare and Medicaid's National Health Expenditure data. Economists will tell you that richer countries have a greater appetite for health spending than poorer ones. A question, then: how much spending is enough?]

In every decade, employer payments for benefits have grown as a share of total worker compesantion, reaching 7.2% of total compensation in 2006.

KFF analyzed employer costs for employees as a percent of Gross Domestic Product. While total compensation for workers is flat over the years, the share of GDP devoted to health has increased, while the wage proportion has dropped.

This translates into a slowing of workers' pay raises. As the share of compensation for health increases in that zero-sum game of compensation, wages fall.

Health Populi's Hot Points: If the trend of health-as-a-proportion-of-total-compensation continues, what is the end-game? Reductio ad absurdum, 100% of pay would eventually go to health. How absurd is that scenario? It's worth working through the scenario. In some households, paying for health can consume well over 10% of take-home pay for average income earners. In households where health insurance is offered by well-meaning employers, a growing percentage of families decline the offer; the chart on the left demonstrates employees' declining take-up rates of health insurance as the amount they contribute to the plan increases.

KFF also reports that most Americans don't buy health insurance if it's not offered at the workplace -- regardless of how much people earn. This lack of utility for health insurance is not a trivial one in the era of consumer-directed health. Among families earning as much as $186,600, only 49% bought their own health insurance. This implies that without a mandate for universal coverage, millions of families will continue to opt out of the pool. And a smaller pool means higher costs for everyone.