August 26, 2005
Health Care Premiums Are Killing Jobs
Most of us have been in a doctor’s office, and many of us have had conditions that require treatment. But few of us are likely to hear any information presented on the cost of different treatment options along with their benefits, especially if we are one of the 170 million people covered by employee or government-provided health insurance. It is an amazing fact that nearly $3 trillion of health care goods and services are ordered off a menu that has no prices on it.
Yet we pay a staggering cost for this privilege. Most of us are aware that the costs of health care have exploded in recent years, and that the burden of businesses and governments, as well as individuals, in paying those costs has been more than some can bear. Controlling the growth of what was once a fringe benefit is now a central focus of the countless companies who have only limited abilities to pass through galloping health care costs to their customers.
Governments are in no better shape. Medicaid expenditures are devouring state budgets, while the projections for the Federal government’s flagship Medicare program call for revenue shortfalls within a decade. Indeed, if Sarbanes-Oxley requirements were mandated for, instead of by, the Federal government, the extent of the future liabilities they would reveal in health care entitlement programs would overwhelm our ability to comprehend them.
What is less obvious to most of us is that health care costs are a killer of jobs and income. Some recent research conducted by the National Bureau of Economic Research adds up the collective result of individual business owners’ efforts to contain health care costs. Their results confirm what many of us have long suspected – in a world where employers pick up a large share of health care costs of their workforce, rising health costs make it harder to find and keep a job.
Indeed, the NBER researchers estimate that every 10 percent rise in health insurance premiums makes it 1.6 percent less likely that you will find a job, and 3.8 percent less likely that your job will provide health benefits. But costs hurt even those who hang onto their jobs. NBER says that that same 10 percent rise in premiums also produces a 2.3 percent decline in wages, and a 1 percent reduction in hours.
The mechanisms that produce these results are familiar. For many types of jobs, particularly lower wage jobs, the response to rising health care costs is to eliminate health care benefits. This is sometimes done by converting full time positions to part time, where health benefits are less typical. But higher paying jobs are affected as well, with higher premium increases and lower wage increases going hand in hand.
These findings put the often shrill, hands-on-hips insistence that the U.S. economic recovery has failed to create enough new jobs in perspective. In an environment where health insurance premiums have increased by 59 percent since 2000, can we really expect employers to open the job-hiring spigot and increase their exposure?
Those who are wondering out loud what the solution to this situation is should know this. The private sector is already implementing a solution, and it isn’t pretty. Without a fundamental change in the ground rules that govern how we pay for health care, you will see more undesirable outcomes like these as companies try – out of sheer necessity -- to limit their exposure to runaway costs.
The question we should be asking is why those costs are so frighteningly high to begin with. Perhaps it has something to do with the fact that the health care menu has no prices on it? Outside of a small number of economists, no one seems to want to fess up to that reality. But until we stop running around trying to get someone else to pay for the health care that we consume, and accept the sometimes harsh discipline that the price system imposes on every other part of the economy, it’s hard to see anything changing soon.
About the Author
Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.
Big Savings for Ending Prevailing WageMy statistical models show that repealing state prevailing wage laws save taxpayers money.
Re-Thinking Economic Development A large share of the most mobile families—perhaps half—no longer need to live near where they work.
Money Illusion and InflationPrice fluctuation could cause inflation to last longer, but it didn’t cause the inflation, it simply extends the pain.View archives