There are two ways employers get out of providing health care. They can stop providing it (and plenty of data shows that they are doing just that) and they can also pass more of the cost onto their employees. That also has the impact that at the margin their employees stop purchasing it for their families or themselves. But it has one more impact, which is that the employees’ costs are going up much faster than the employers.
California Healthline had a good summary of a WSJ article and other accounts of a Mercer survey this week showing that pushing more costs onto workers reduces the employers’ costs (or at least reduces the amount of increase in those costs).
According to the survey, employers’ health care costs rose 6.1% in 2005, compared with 7.5% in 2004, 10.1% in 2003 and 14.7% in 2002. The average cost of company health plans increased from $6,679 per employee in 2004 to $7,089 per employee in 2005, the survey found . Employer spending on health coverage would have increased 10% in 2005 without the shift in cost to employees and changes to health plans, according to the survey.
Now there’s nothing revelatory here, other than some continued misunderstanding by economists that this is just moving the deckchairs on the Titanic. It is moving the deck chairs on the Titanic in terms of containing overall health costs–they’re not going to be much affected by who ends up picking up the tab at the margins. But despite the feelings of snooty doctoral students at Harvard and even brilliant health economists at Stanford, there is an impact in the real world from who pays for what.
That’s because it’s not as if employers are rewarding their employees with extra cash to replace essentially lowering their health care benefits (or making them pay higher "premium per benefit"). So those employers who cut benefits more have lower labor costs and therefore make higher profits. Hence the continued difference in the margins of Costco and unionized supermarkets on the one hand and the Wal-Mart on the other. This leads to those economists who’ve vacated the Ivory Towers and instead taken the lure of the filthy lucre to become analysts on Wall Street to put continued pressure on the "good" companies to end up looking like the Wal-Marts of the world. Which has been playing out in labor disputes across the country and even has affected the hallowed halls of General Motors itself.
And while the end of the employer-based health care system is something I am in favor of, I’m not in favor of it dying by a thousand cuts while nothing is there to replace it.
Coda: The crack at the Harvard doctoral student is an old chestnut here at THCB. However, me taking aim at America’s greatest health economist and my old professor Vic Fuchs is quite another thing. Here’s what he said in his latest Health Affairs article, which (apart from this little dispute is excellent as you’d expect):
Today the largest private employer is Wal-Mart, which despite its size faces intense competition daily from a host of other retail outlets. When they offer health insurance, it must come out of their workers’ wages; for minimum-wage employees, this is not possible, so it often will mean loss of jobs.
While that is true across the economy, it assumes that there are constant margins among firms within one industry. But we know that’s not true. Wal-Mart has much higher margins and higher profits than other retailers. it could easily afford more generous health benefits, and maybe would have them if it was unionized. However, we know that Wal-Mart spends incredible amounts of effort to prevent unions getting a foothold, partly because of the health insurance issue, and overall in order to keep its labor costs lower. Wal-Mart tries to keep all of its costs lower including those of its suppliers, other than one set of "costs" — those that it retains as earnings, some of which it pays to its shareholders. So to say that "It must come out of their wages" only really holds true if you count the dividends that the Walton family (net worth >$100 billion) collects as "wages". You could just pay them (and the other shareholders) lower margins and pay the workers more in health benefits. That’s exactly what Costco does. But that’s the real world not the economists’ theoretical level playing field that Vic Fuchs doesn’t usually get stuck on.