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Growing Job-Based Insurance Premiums Exacerbate Income Inequality

For employers, labor costs include both wages and benefits. So when insurance premiums rise rapidly, wages stagnate. A new study finds that this phenomenon reduced total worker income from 1988-2019 by 5%. Lower paid workers and people of color were hit hardest, amplifying income disparities.

January 20, 2024

Employer-Sponsored Health Insurance Premium Cost Growth and Its Association with Earnings Inequality Among US Families
JAMA Network Open
January 16, 2024
By Kurt Hager, Ezekiel Emanuel, & Dariush Mozaffarian

Question

What is the association of increasing health care premium costs with earnings inequality and wage stagnation among US families with employer-sponsored health insurance?

Findings

In this economic evaluation of US families receiving employer-sponsored health insurance, the mean cumulative lost earnings from 1988 to 2019 associated with growth in health insurance premiums was $125,340 per family (in 2019 dollars) or nearly 5% of total earnings over the 32-year period. In all 32 years of the study, health care premiums as a percentage of compensation were significantly higher for non-Hispanic Black and Hispanic families than for non-Hispanic White families.

Meaning

This study suggests that increasing health insurance premium costs are likely associated with decreased earnings and increased income inequality, including by race and ethnicity, among US families receiving employer-sponsored health insurance and are meaningfully associated with wage stagnation.

Comment by: Don McCanne

This study is quite disconcerting because it shows that one of the most important categories of health insurance – employer-sponsored health plans – has some very serious deficiencies that might cause individuals to question whether we should be favoring it over other better methods of financing health care.

Perhaps the most shocking finding in this study is that employers are not footing the premium bill for these policies. Employees explicitly pay a portion of premiums. And the nominally employer component is invisibly paid by employees without their knowledge via forgone wage increases. Lest anyone think this is insignificant, the authors have calculated that it amounts to about $125,000 per worker over the 32-year period studied. Imagine the good that would do if it were an additional contribution to retirement plans, especially for low-income employees.

Another deficiency of employer-sponsored plans is that, since the same premium is usually contributed to each employee’s plan, the contributions are regressive. Low-income employees are paying a much higher percentage of their incomes than are high-income employees. Yet another serious deficiency is that this perpetuates the repulsive social inequities in which Black and Hispanic employees pay a larger percentage of their incomes for health insurance by virtue of the fact that their incomes are lower and yet the same premiums are passively omitted from their incomes. It should embarrass us all that we tolerate a health care financing system that perpetuates such racial inequities.

So not only is private insurance a defective method of financing health care when we purchase it, because of its regressive nature of funding health care (the poor paying as much into the insurance pool as the rich), we now know that it is also a regressive method hidden by what appeared to be the generosity of employer sponsorship actually paid by forgone wages and salaries. We also discuss in a recent HJM post that private insurance, whether or not employer-sponsored, is no longer effective in paying medical bills because large cost-sharing is a major cause of unmanageable medical debt.

Now that we know that there are significant problems with both buying and using private health insurance, it’s quite clear that we should be looking for a health care financing system that serves everyone well.

The obvious solution is a single payer, improved version of Medicare. Rather than the flawed premiums and deductibles that we’ve shown are very unfair, the system is paid through progressive taxes. Low-income individuals pay a lower level of taxes that allows them to keep enough income to meet essential needs. High-income individuals pay more taxes, but keep enough for essentials as well as optional possessions and investments that maintain their status as individuals of wealth.

There remains a political divide over the definition of fairness of progressive taxes. In the past, we were concerned about the injustices of tolerating profound poverty, impairing access to food, housing, health care, education, and other needs, while we protected the elegant lifestyles of millionaires from the tax collectors. Now we protect the billionaires. The business elites are looking forward to the category of trillionaire

Which public policy should we as a nation support? Using our cumulative excess wealth to address financial and social justice deficiencies such as our impaired health care system by using a progressive tax system that will still keep the wealthy exceptionally comfortable, ensconced in their luxury? Or should we ignore our social injustices while we establish policies that would enable one individual to accumulate the equivalent wealth of one thousand billionaires, thus becoming a trillionaire? It seems obvious: yes on social justice, no on trillionaires.

We would still have to deal with health system ownership issues so that the health care system is designed to benefit patients rather than to create wealth for investors, and we would also have to elect public stewards who would want to support our public financing system rather than the trillionaires, but considering the system we could have that would take care of all of us, wouldn’t that be worth the effort?

About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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