Friday, November 1, 2013

Employer Provided Health Insurance Isn't Really Provided by Employers


As many of you may have noticed, I've been on a bit of a tear lately attacking employer-provided health insurance. Anyway, I'm at it again today. One of the things I've actually heard a lot of people saying about EPI usually goes something like this, "Why should I care if my employer-provided plan ultimately costs more that one I can get in the exchanges? My employer's the one footing most of the bill!" 

This is demonstrably wrong. It helps to think about it like this: when you're a worker who gets paid in cash and gets insurance through your job, your total compensation is how much your employer spends on you--both on cash wages and for your insurance. Simply put, every dollar an employer puts in towards paying "their part" of your premium is basically just one less dollar they'd have paid you in wages. In fact, over the longer run, employees who don't get insurance from their employers ended up getting paid higher wages overall (ever notice how contract workers get higher pay than salaried ones?). So even if your employer supposedly seems to be footing the bill for most of your insurance plan, they really aren't, and every time health care costs rise more rapidly, that ends up depressing your wages. For those of you visual learners, here's an interesting comparison to consider:



There's a bit of a lag in the data, and there are obviously many, many more factors at play here than just health care costs, but it certainly is interesting to think about and does seem to bear out the theory. As you can see, in the early 1990s when health care costs grew more slowly, wages grew somewhat more quickly. 

In any case, this apparent one-for-one trade-off that's been found between EPI and wages is made even worse by the fact that employers sometimes end up offering plans that are far more expensive than many employees actually need. For example, a company that has both younger and older employees might offer a generous (read: expensive) health plan that the younger employees don't actually need, but are basically coerced into getting if they want to be insured. This creates the doubly unfortunate situation in which a rise in costs eats into their wage growth and is further exacerbated by that already expensive plan. Needless to say, this is a lose-lose situation for a lot of people.

So have I convinced you yet?