Health Care Costs and Wages

Ezra Klein continues to argue that the BaucusCare excise tax will lead to increased wages. There are two points to be made about this.

First, if that is so, then Ezra can not credibly claim that the excise tax will be more deficit neutral than the House's wealthy individual income surtax for health care. Why? Because, according to Ezra, employers will structure the compensation+benefit packages to avoid the BaucusCare excise tax. Wealthy people will not make less money to avoid the health insurance income surtax. Second, Ezra claims that:

The correlation between the two data sets is -0.8, which is incredibly high for this sort of thing. To give you an idea, I also ran the correlation between GDP growth and median wages over the period: It was 0.7, which is to say that there was a weaker connection between economic growth and median wages than between health-care costs and median wages. There is, in other words, very good evidence that employers pass health-care savings onto employees.

Actually, it is more accurate to say that employers pay "more" in health insurance costs for employees instead of cutting health insurance for employees. The correlation Ezra identifies is actually the very reason why unions are so opposed to the Baucus Care excise tax. They have been successful in their bargaining with employers regarding health insurance, much more so than in raising wages. As Ezra himself notes, employees have been more successful in bargaining for health insurance benefits than wage benefits.

Ezra thinks this data makes his point. In my view, it obliterates his argument.

Speaking for me only

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    If Ezra is correct, wouldn't employees (5.00 / 2) (#8)
    by oculus on Wed Oct 21, 2009 at 11:27:25 AM EST
    with no employer-subsidized health insurance be making alot more than minimum wage?

    Yes (none / 0) (#10)
    by Big Tent Democrat on Wed Oct 21, 2009 at 11:28:21 AM EST
    Nono (none / 0) (#11)
    by Steve M on Wed Oct 21, 2009 at 11:30:51 AM EST
    The argument is, your total compensation is fixed by the laws of supply and demand.  So if the health insurance portion of your compensation is reduced (because your employer doesn't want to pay the excise tax) in theory they should increase the wage portion of your compensation.

    In the long run this is probably true up to a point.  But it doesn't really say anything about people who earn minimum wage with no health insurance - they don't have a health insurance portion to be taken away.


    Disagree (5.00 / 2) (#13)
    by Big Tent Democrat on Wed Oct 21, 2009 at 11:34:22 AM EST
    According to Ezra's theory, lower health care expense should lead to higher wages.

    There is no reason that should not be true at the lower ends.

    oculus' point actually denudes Ezra's argument as well - employees with no health benefits should make more money than comparable employees with health care benefits.

    But the reality is employees have less bargaining power than that.

    Ezra is living in a fantasy world, both in the short run and the long run.


    With the economy the way it is today (5.00 / 2) (#23)
    by CST on Wed Oct 21, 2009 at 12:34:04 PM EST
    I don't see how anyone can seriously make the argument employees have bargaining power.

    Has he been living in a box for the last year?

    Can you even imagine (5.00 / 1) (#25)
    by nycstray on Wed Oct 21, 2009 at 12:52:53 PM EST
    employers telling you your premiums are going up (and benefits going down), but don't worry about it, we're giving you a raise to even it out . . . . lol!~

    Nope. At least not in government (none / 0) (#26)
    by oculus on Wed Oct 21, 2009 at 12:54:51 PM EST
    employment, which actually had employer-subsidized health care plans.

    I've worked for various sized companies (5.00 / 1) (#27)
    by nycstray on Wed Oct 21, 2009 at 01:03:44 PM EST
    Small to large, and I can't imagine a single one doing that. Health insurance will become mandatory, but it will not be factored into cost of living wage increases or anything else that would help the employee out at the expense of the bottom line.

    In the many years our bargaining unit (none / 0) (#28)
    by oculus on Wed Oct 21, 2009 at 01:06:23 PM EST
    couldn't achieve a raise in pay, sometimes and sometimes not our side did get the government to pay a higher portion of the premium, which, of course, was much higher than the year before.

    I can (none / 0) (#29)
    by Inspector Gadget on Wed Oct 21, 2009 at 02:59:11 PM EST
    see my employer doing that, but there are only 3 of us in the company and the owner is really insistent on good health insurance. He wants us going to the doctor when we need to get better so we can get back to work....and, he wants a good plan for himself, which means we all get what he has :)

    And your getting a COL raise? (none / 0) (#31)
    by nycstray on Wed Oct 21, 2009 at 04:52:34 PM EST
    yer one of the rare ones.

    What happens if the company grows or business decreases? Is what he's doing sustainable in those instances?


    Ezra isn't living in a box... (5.00 / 2) (#32)
    by Romberry on Thu Oct 22, 2009 at 03:08:36 AM EST
    Ezra is living in a bubble. It's the DC Beltway bubble. It envelopes almost everyone who moves up to the "big time" and apparently cuts off the supply of air to their brains. (Matthew Yglesias is also bubblized.)

    O.K. I'm really confused (none / 0) (#1)
    by MO Blue on Wed Oct 21, 2009 at 10:39:36 AM EST
    My understanding is that the excise tax will tax the insurance companies and not the employers.

    Now I am aware that the insurance industry will pass these taxes on to the consumer through higher premiums but I have yet to see anything that provisions in the legislation state that the higher premiums as the result of the excise tax will only be allowed on the high end policies. If not explicitly prohibited, what would prevent the industry from spreading the costs throughout the entire population of their insurance base to justify an increase in premiums for everyone. It would be to their financial interest to do this. There is no benefit for them to price themselves out of the high end market and they could realize more of a profit by raising premiums on everyone.


    Hmm (none / 0) (#3)
    by Big Tent Democrat on Wed Oct 21, 2009 at 10:47:08 AM EST
    "Now I am aware that the insurance industry will pass these taxes on to the consumer through higher premiums . . ."

    You answer your own question it seems to me. The idea is employers will balk at the higher premiums and choose less expensive plans. Ezra's theory is that as a result of this choice by employers, wages will increase.


    Higher premiums across the board (5.00 / 2) (#4)
    by MO Blue on Wed Oct 21, 2009 at 11:16:21 AM EST
    rather than just on the high end policies would probably result in relatively modest increases to the high end policies. So I do not think that those policies would be eliminated for the higher ups in companies. They would still get their Cadillac coverage.

    The trend for companies to increase employee's share of the premiums while reducing coverage has been going on for over ten years. The % of salary increases have remained stagnant for ordinary people. And that was before the unemployment rate went through the ceiling. Most people already the experience the effect of negative annual income each and every year as a result of their premiums exceeding the  amount of their increase in wages.  The only people who have been able to realize a net gain in salary are those who are very strong unions and people in the higher income levels.

    So while I agree that Erza is wrong as stated above, the idea that has been floating around that this might only effect those who currently have Cadillac coverage may be wrong and needs to be explored. If spread throughout the population, the excise tax would hurt ordinary workers the most.  


    Addition (none / 0) (#5)
    by MO Blue on Wed Oct 21, 2009 at 11:19:10 AM EST
    It would also not produce the projected revenue.

    again we are in agreement (none / 0) (#9)
    by Big Tent Democrat on Wed Oct 21, 2009 at 11:27:56 AM EST
    We are in agreement (none / 0) (#7)
    by Big Tent Democrat on Wed Oct 21, 2009 at 11:27:23 AM EST
    BTW, since I am stating the obvious (none / 0) (#19)
    by MO Blue on Wed Oct 21, 2009 at 12:01:55 PM EST
    SnoweCare (i.e. BaucusCare) has been structured to pave the way for a race to the bottom where ordinary people will all finally wind up with junk insurance at premium prices.

    Doesn't federal law require all employees (none / 0) (#12)
    by oculus on Wed Oct 21, 2009 at 11:31:25 AM EST
    of one employer have access to the same package of benefits as the top strata?  Or is that only applicable to 401K, deferred comp. plans?  Must be the latter--severance packages aren't across the board.

    I at one time worked for a Fortune 500 (none / 0) (#16)
    by MO Blue on Wed Oct 21, 2009 at 11:44:44 AM EST
    company. Believe me I did not have the same package of health insurance benefits as the top strata or much of anything else either.

    How about this stuff? (none / 0) (#18)
    by oculus on Wed Oct 21, 2009 at 12:01:26 PM EST
    Didn't get those type of benefits, if you (none / 0) (#20)
    by MO Blue on Wed Oct 21, 2009 at 12:07:22 PM EST
    consider them that, either. Is it possible that the top strata did? Maybe.

    As far as I know (none / 0) (#22)
    by Steve M on Wed Oct 21, 2009 at 12:22:00 PM EST
    it is only for 401(k) plans.  For example, if our firm wants to provide insurance for the dependents of attorneys but not the dependents of staff, we can do that.  But if upper management gets a "gold-plated" 401(k) while the rank-and-file doesn't, you lose a big chunk of the favorable tax treatment.

    Nothing gets passed on to workers... (none / 0) (#2)
    by Dadler on Wed Oct 21, 2009 at 10:42:16 AM EST
    ...in this country, wages have been stagnant for decades. That is precisely the way our system has been rigged to operate essentially since Reagan rolled in with the anti-government regulation agenda, which has only snowballed into a bigger boulder of ice ready to flatten even more of the country.  Ezra is too young to have lived this reality, he hasn't a clue.  

    BTW, there was a great FRONTLINE on last night about Brooksely Born. Must see for anyone curious about he origins of our economic demise.

    Not entirely true (5.00 / 2) (#17)
    by sj on Wed Oct 21, 2009 at 11:50:25 AM EST
    Nothing gets passed on to workers...

    Costs get passed on to workers.  Gains?  not so much.


    touche' (none / 0) (#21)
    by Dadler on Wed Oct 21, 2009 at 12:08:01 PM EST
    It is funny isn't it (none / 0) (#6)
    by SOS on Wed Oct 21, 2009 at 11:26:13 AM EST
    being Erza is a Reagan Product. Probably believes Americans don't need jobs anyone can publish on the internet.

    Ezra (5.00 / 1) (#15)
    by TeresaInSnow2 on Wed Oct 21, 2009 at 11:41:41 AM EST
    certainly is proof of that concept ;-).

    The other side to this is (none / 0) (#14)
    by vicndabx on Wed Oct 21, 2009 at 11:40:55 AM EST
    a cheaper plan purchased by your boss will likely mean higher out of pocket costs for you (i.e. higher deductible, coinsurance, co-pays.)  Six in one hand, half-dozen in the other.

    Obviously, Ezra has never (none / 0) (#24)
    by coast on Wed Oct 21, 2009 at 12:37:16 PM EST
    run an actual business with employees if he believes what he is writing.

    or worked in one, either (none / 0) (#30)
    by sj on Wed Oct 21, 2009 at 04:19:17 PM EST