POLICY: Health care and profits take a hack out of wages

The New York Times picks up on a story that's been going on for a long time in America health care.  What's happening is that the increase in real wages has all been sucked up by the added cost of health care benefits.  Back at at IFTF were used to have a chart which showed that real wages have gone up something around 2% from the late 70s to the mid-90s whereas health-care benefits had gone up something like 100%.

The major difference now is that because the costs of health care are so much higher, the impact on wages particularly at the low end of the spectrum is much greater.  Funnily enough last week I got a notice in the mail from my health insurance company telling me that my rates would increase 20%. While I had the rep on the phone I asked when the other big rate increases would come based on my getting older.  She told me that essentially every five years, so when I turned 45, 50, 55 and 60, I would see a big bump.  My new rate is $120 a month for a $2500 deductible. If I was aged over 55, it would be something like $350, and if I was 60 and waiting for Medicare it would be nearer $500.  So even with a high deductible plan, we talking $6,000 in premiums annually for an individual policy.  When you consider that the average household income is less than $60,000, it goes to show that even at today's rates the poorer half of the leading edge of the baby boom is going to have real trouble paying for a high deductible policy -- and of course by the time you run the clock forward at the increases we’re seen, it will be even worse in five years time.

The Times story also picks up on the fact that productivity has increased but wages have not. Even when you count total compensation including health-care benefits they still haven’t kept up and more of the share of revenues is going to  profit. I cannot exactly claim to be a big fan of Tom Friedman.  After all he is the guy who justified the war in Iraq on the grounds that we were bringing democracy to the Middle East and frankly he reminds me of as a 19th century colonialist justifying the British Empire by saying that we are civilizing the native.  However, for better or for worse, he is the guy who's popularized the notion of the earth being flat, and it is the downward pressure on wages and brought by the introduction of the Indian and Chinese labor force to the American economy that is causing the inability of American workers to grab their fair share of the increase in profitability.

But while health care benefits are keenly sought by employees, at some point they’ll realize that they don’t get the benefit of them directly, and that the ever upward spiral in health care costs is harmful to them. Of course the same issue is going on with the employers, and both sides have problems understanding what's going on, or at least in coming to the obvious solution. Malcolm Gladwell has a New Yorker article looking a little at the history of this. It's not particularly stellar, but it does have one great paragraph which explains why American business will fight every supplier to the last nickel but will let itself get raped year after year by health care, and not do the politically obvious thing need to stop it:

Under the circumstances, one of the great mysteries of contemporary American politics is why Wagoner isn’t the nation’s leading proponent of universal health care and expanded social welfare. That’s the only way out of G.M.’s dilemma. But, from Wagoner’s reticence on the issue, you’d think that it was still 1950, or that Wagoner believes he’s the Prime Minister of Ireland. “One thing I’ve learned is that corporate America has got much more class solidarity than we do—meaning union people,” the U.S.W.’s Ron Bloom says. “They really are afraid of getting thrown out of their country clubs, even though their objective ought to be maximizing value for their shareholders.”

CODA: The cynic in me sees the export of health care services to India and China as freeing up more of the total revenue available for wages and profits. I wonder which one for those will get the lion's share