The hidden costs of health care

A recent report from the U.S. Census Bureau showed that, after inflation, the household income of Long Islanders didn't change much from 2005 to 2009. That's no big surprise; wages haven't risen much nationwide in quite a bit longer.

But the data hide a big part of what's really been happening, and it's crucial that workers - and voters - understand the truth behind the numbers. Household income is mainly money wages - the dollars your employer gives you for doing your job. The picture looks different when you take account of employee benefits - especially health insurance.

Many people don't consider it this way, but benefits such as medical coverage are just another form of pay - only better, because it's untaxed. While your employer may seem to be paying for your pension and health benefits, the one really paying is you, since absent these benefits your cash wages would probably be that much higher.

Why does any of this matter? Because for decades now, the cost of health care has been rising much faster than worker productivity or wages. The price of health insurance has been rising correspondingly. And these rising costs are eating up worker wage increases. In addition, workers are paying more and more directly from their own pockets for their contributions to the cost as well as deductibles and co-pays.

Let's look at the big picture. Every year since 1960, American employees get about the same share of our gross domestic product: just short of 60 percent. But the share that comes in the form of health coverage has increased more than sixfold. At the same time, the share paid in money fell from 51.8 percent to 45.3 percent. (This is one reason there is so much tension between voters and public employees. Many of the latter pay little or nothing toward their soaring health costs while also getting contractual raises.)

The absolute numbers are more striking: In constant dollars, employer spending on health policies in 2008 was a staggering 25 times higher than in 1960 - even though employers shifted more and more of the burden on to workers. Many employers dropped coverage altogether. Worse yet, it's doubtful we're getting our money's worth; other advanced nations spend way less, enjoy better health and manage to provide insurance for everybody.

There are other reasons workers, particularly blue-collar workers, haven't made wage gains, including changes in technology, foreign competition, the decline of manufacturing in this country and the near-extinction of unions in the private sector. But health-care spending may be the biggest reason.

The health-cost spiral persists in part because our current system obscures who pays what. Workers with employer health coverage must realize that they pay for much of it - and, since it's a deductible business expense for employers, other taxpayers help. Whatever your view of the Obama health-care reforms, one thing is clear: Until we rein in these costs, the prospect of real wage gains by American workers is dim. hN