Economic Perspective: How Workers Pay For Higher Healthcare Costs

MARY WALDEN:

“Today’s program asks, ‘How workers pay for higher health care costs?’ Mike, about half of us receive health care insurance coverage through our employers. As health insurance costs continue to rise do companies share those rising costs with their workers?”

MIKE WALDEN:

“Indeed when you work for a company that does pay for your health insurance that’s obviously considered a major workplace benefit, and the question here is, of course, when health costs go up, insurance costs go up that’s going to raise the cost to the company providing you that kind of health insurance.”

“For example, maybe the average company was paying $3,000 per employee for health insurance, and as costs go up maybe that rises to $4,000. That question then is, well, how do they pay for that. How does the company pay for that? Do they take it out of profits? Do they reduce their other expenses, et cetera?”

“In terms of employees, one way is to charge those employees higher deductibles and copays; that’s the amount that you pay as a worker for your healthcare before insurance kicks in. And we are seeing that in the economy.”

“But a second way is to reduce the size of pay raises to employees. In fact, a new study finds that this indeed is occurring. This new study finds that for every dollar increase in health insurance costs that the employer has to pay, they will reduce the hourly pay of their workers by 50 cents. So that’s an amazing statistic, and if true that is part of the explanation for why we may have seen very modest pay raises over the last decade.”

“So I think the bottom line here is nothing’s free. As healthcare costs go up, and health insurance goes up, in terms of its cost, someone is going to pay.

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who
teaches and writes on personal finance, economic outlook and public policy.