Friday, September 27, 2019

Just how big a bite does healthcare cost growth take out of earnings?

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The Kaiser Family Foundation's Employer Health Benefits Survey for 2019, released this week, shows a continued upward march in premiums and out-of-pocket costs. While costs have risen more slowly in the past five years than in the previous five, and in the last ten years (2009-2019) than in the previous ten (1999-2009), they continue to outpace inflation and wage growth. 

To get a feel for how much wage growth is eaten by health costs, let's look at some broad averages: the average increase in premiums and deductibles set against the average increase in the mean wage. Jeffrey Young's overview of the survey results at HuffPost provides a useful starting point:
In the past 10 years, the average premium for job-based health insurance that covers a family has risen 54%, to $20,756. Moreover, the amount of that premium workers pay for family coverage has increased 71%, to $6,015.
During that same decade, the share of workers whose health plans carry deductibles requiring them to pay hundreds or thousands of dollars in out-of-pocket costs before their insurance coverage kicks in has increased from 63% to 82%. The size of the average deductible has grown from $826 to $1,655.

At the same time, income hasn’t kept pace. From 2009 to 2019, earnings have gone up just 26%.
The survey does not provide an overall average of family plan deductibles or their increase over the years. In PPOs and HMOs, family deductibles are a bit shy of $3,000 on average. For our purposes here, I'll imagine an employee with family coverage whose out-of-pocket costs go up by the difference in single-person deductibles.

Below, these average increases are set against the average wage increase of 26% over ten years, based on the 2018 average wage for full-time work reported by the Bureau of Labor Statistics (that's a year off, but the ten-year average and dollar difference should be close).

Worker healthcare costs vs. wage increases, 2009-2018 
Family premium, single deductible

Cost or income
$ increase
% increase
Share of premium
$  3,517
$  6,015
$  2,498
$     826
$  1,655
$     829
Total cost
$  4,343
$  7,670
$  3,327

The increase in healthcare costs, by this very hypothetical measure, might consume $3,327 in 2019, or 31% of this year's wage increase over 2009. What if healthcare costs had risen in step with wages, 26%?  In that case, premium plus deductible in 2019 would be $5,472 instead of $7,670.  The extra $2,198 in healthcare costs in 2019 is about 4% of the $51,960 annual wage.

The employee's share of premiums and OOP doesn't tell the whole story. The employer's share is also compensation -- and the average employer's share of the family premium increased by $4,701 from 2009-2019. from $9,860 to $14,561.  Had that share also risen 26%, the employer's share would have been $12,424 in 2019. The growth of the employer's contribution in excess of wage growth is a bit over $2,000 ($2,137). Had the cost of insurance risen at by just 26% over ten years, how much of that $2k-plus might have been plowed into wages?

This is a very crude calculation, but it gives a sense of scale. The past ten years of healthcare cost increase relative to wage increase might cost a full-time average wage earner with family coverage $3,000-$4,000 this year in added costs and decreased wages, or, say, 6-8% of income.

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