Health Care Costs and Wages
Most people place high value on their salaries and wages. Many don't even know that their wages are significantly influenced by the total cost to employers of not only their wages but also their total benefit costs. And health care costs paid by employers make up a large portion of their total payments for employees.In fact, as shown below, wages and salaries only constitute about 66% to 71% of the employee costs to employers.
(From: www.bls.gov/ncs/ect )
Health benefits covered by employers are second only to wages as a category of employer sponsored expense. And the proportion of benefits devoted to healthcare costs has risen dramatically more than other compensation elements in the 10 years between 1999 and 2009 (latest Department of Labor reporting period).
• Total Compensation: +44.8%
• Wages & Salaries: +39.2%
• Benefits: +59.1%
– Health Coverage: +103.4%
– Retirement: +69.7%
– SS/ Mcare/WC/Unempl.* +37.6%
(*Legally required Social Security, Medicare Part B, Workers Compensation, Unemployment Payments)
These proportions apply whether benefits are distributed directly by the employer or through a collective bargaining agreement with a union. So both unions and employers share common ground – they need to bring healthcare cost inflation under better control. It’s hard for union trustees to be reelected when their shop stewards and members have wages that are flat and they don’t understand the impacts of healthcare cost inflation on their disposable income.
In other words, THE PLATFORM IS BURNING!
And employees and union members are experiencing cost shifts from their employer to their own pocketbook to pay for healthcare visits and treatments. Since 1999, the share of health care premiums paid by employees has increased 159 percent, while the cost of employer-sponsored health care benefits has grown 138 percent, according to a study by Kaiser Family Foundation Health Research and Educational Trust in 2010. (http://ehbs.kff.org/pdf/2010/8085.pdf ) And a May 2011 report confirmed that American’s confidence in their ability to access and pay for healthcare dropped to a historic low in April 2011. (http://tinyurl.com/3bdfzfr ) As they skip their visits and prescriptions, their burden of illness goes up. Then their doctors and hospitals experience higher bad debt ratios. Patients show up in emergency departments where care averages about 11 times the cost of doctor office visits or in hospitals where care costs about 136 times the cost of a doctor visit. This results in bankruptcies of patients, higher tax burdens to pay uncompensated care at public hospitals, and cost shifting to employer sponsored health plans. (Medicare, Medicaid, Department of Defense, and Veterans Administration facilities tend not to increase their payments in accordance with cost shift burdens.)
Not surprisingly, US healthcare ranks behind Slovenia for overall health care quality. (New York Times, Nov. 4, 2009) We rank #31 for life expectancy and #37 for infant mortality rates, even though we spend more than twice as much of our gross domestic product on health care compared to our nearest competitor.
So what must we do?
Regardless of whether you are an employer purchasing benefits for employees and dependents, a union trustee arranging highly valued healthcare coverage for your members and dependents, or an individual trying to stay reasonably healthy while saving money, we all must pay attention to best buys in health care. It’s like going to “Consumer Reports” to make an informed decision about buying a car, refrigerator, computer, or television.
Questions are the answer. Most people don’t pay as much attention to their healthcare, costing the typical American family $4000 in 2010 for their portion of the health insurance premium, as they do for a $50 meal or $100 cell phone. (See http://www.youtube.com/watch?v=FSgSwR7tG6c and http://tinyurl.com/3sj497w ). And the choices they make can cost them 3 to 8 times more than the best choice for the same result, if they pay percent coinsurance out of pocket in addition to contributing to the health insurance premium cost. (More on this later.)
Future posts will discuss cost and quality drivers and value based decisions that can get us all more for the bucks we pay for healthcare services.
Jerry Reeves MD
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