Rising Health Costs Cut Into Wages

Michael Smith, left, CEO of TeraTech, with Liz Frederick, right, and Nafisa Sabu at the firm's Rockville office. Smith opted to pay workers higher salaries and let them decide whether to buy the firm's health insurance.
Michael Smith, left, CEO of TeraTech, with Liz Frederick, right, and Nafisa Sabu at the firm's Rockville office. Smith opted to pay workers higher salaries and let them decide whether to buy the firm's health insurance. (By Kevin Clark -- The Washington Post)
  Enlarge Photo     Buy Photo
Benefits Costs Rise
By Michael A. Fletcher
Washington Post Staff Writer
Monday, March 24, 2008

Recent history has not been kind to working-class Americans, who were down on the economy long before the word recession was uttered.

The main reason: spiraling health-care costs have been whacking away at their wages. Even though workers are producing more, inflation-adjusted median family income has dipped 2.6 percent -- or nearly $1,000 annually since 2000.

Employees and employers are getting squeezed by the price of health care. The struggle to control health costs is viewed as crucial to improving wages and living standards for working Americans. Employers are paying more for health care and other benefits, leaving less money for pay increases. Benefits now devour 30.2 percent of employers' compensation costs, with the remaining money going to wages, the Labor Department reported this month. That is up from 27.4 percent in 2000.

"The way health-care costs have soared is unbelievable," said Katherine Taylor, a vice president for Local 1199 of the Service Employees International Union. "There are people out here making decisions about whether to keep their lights on or buy a prescription."

Since 2001, premiums for family health coverage have increased 78 percent, according to a 2007 report by the Kaiser Family Foundation. Premiums averaged $12,106, of which workers paid $3,281, according to the report.

That is why negotiators for 396 maintenance workers at Georgetown University cheered last fall after squeezing out wage increases that average a little more than 4 percent in each of the next three years, or between $20 and $40 a week. The real victory for the custodians, landscapers, plumbers and other workers was the provision imposing a one-year freeze on employees' share of health-care premiums and capping premium increases for the least expensive family plan at just under $28.

"Our members are pleased with the contract. Health care is a priority for them," said Taylor, whose union represents the Georgetown workers. "If you have good wages and poor health-care benefits, it is like getting money in one hand and losing it out of the other."

The runaway cost of health care has long been a concern, largely because of the huge number of Americans -- estimated at 47 million -- who are uninsured. But health-care costs are re-emerging as an economic and political issue in part because of the role they play in the stubborn problem of stagnating wages.

"It is clear that benefits have been the biggest issue on collective bargaining tables and in company compensation calculations," said Thomas A. Kochan, an economist at the Massachusetts Institute of Technology. "They eat up scarce dollars, and that limits the amount of money firms feel they can put on the table for wage increases."

The Democratic presidential candidates, Sens. Barack Obama (Ill.) and Hillary Rodham Clinton (N.Y.), have laid out proposals for expanding health-care coverage by requiring most employers to either offer it or pay a fee to subsidize the purchase of health insurance. Expanded coverage, they say, will lower costs for everyone. They also support legislation that would make it easier to organize labor unions, something they say would give workers better leverage in seeking pay and benefit improvements.

Presumptive Republican presidential nominee Sen. John McCain (Ariz.) has proposed reining in health-care costs, in part by treating the value of employer-sponsored health-care plans as income and providing a $5,000 per family tax credit for those who buy health insurance. He also supports free-market proposals aimed at stoking competition and giving patients more information, which he believes will increase pressure on health providers to control costs.

Researchers Ezekiel J. Emanuel and Victor R. Fuchs say that employer-sponsored health-care plans create the "myth" that workers are getting their health benefits for little or nothing. But, in fact, "workers and households pay for health insurance through lower wages and higher prices," they wrote in the March 5 issue of the Journal of the American Medical Association.

CONTINUED     1        >

© 2008 The Washington Post Company