Health Care’s Inequality Problem

One of the underestimated aspects of Obamacare’s impact on the economy is the effect it’s had in driving inequality. Health care costs in particular have contributed to rising economic inequality in recent years, as Mark Warshawsky of the Mercatus Center and Andrew Biggs of the American Enterprise Institute detail in this piece at The Wall Street Journal: “[T]he more we spend on health care the more unequal Americans’ incomes become.”

Most employers pay workers a combination of wages and benefits, the most important of which is health coverage. Economic theory says when employers’ costs for benefits like health coverage rise, they will hold back on salary increases to keep total compensation costs in check. That’s exactly what seems to have happened: Bureau of Labor Statistics data show that from June 2004 to June 2014 compensation increased by 28 percent while employer health-insurance costs rose by 51 percent. Consequently, average wages grew by just 24 percent.

But here’s what the news headlines miss: Rising health costs don’t affect every employee the same. An average family health policy today costs employers nearly $12,000 per year, up from only $4,200 in 1999. Had employer premiums not risen, average salaries today would be around $7,800 higher. For a lower-income worker who today makes $30,000, that could have meant a 26 percent salary increase. By contrast, a “one percenter” making $250,000 today would have seen his earnings rise only by 3.1 percent. Health costs are a bigger share of total compensation for lower-wage workers, and so rising health costs hit their salaries the most. The result is higher income inequality.

Data from the BLS National Compensation Survey show that is exactly what happened. For low-income workers, total pay and benefits rose by 41 percent from 1999 through 2006. But these workers’ wages increased by only 28 percent, barely outpacing inflation. The reason: Employer costs for their health care nearly doubled, from 6.5 percent to 12.2 percent of compensation, eating up money that could have gone toward salaries.

Surely Obamacare helps correct this problem, right? Not only does it not do so, it actually spends or requires the expenditure of a great deal more on health care, and in doing so, increases inequality between the genders, according to Casey Mulligan of Mercatus, because of its bias against part-time 30+ hour workers – overwhelmingly jobs filled by women.

As a result of its exclusive access to the law’s new health insurance assistance, part-time employment becomes comparatively more desirable to workers, or at least less undesirable, than it was in the past.

Both of these employment disincentives are worth thousands of dollars per year and, in some cases, more than a thousand dollars per month. Both will lead to less full-time work and even less productivity per hour of work that is performed. This is because some positions are vastly more efficient when worked full-time, and the new employment disincentives will not be enough to change that.

Nevertheless, a number of positions have traditionally been 30- to 39-hour jobs, and those who occupy these jobs typically will have less trouble adapting to a 29-hour schedule that avoids the employer penalty or allows the worker to get the ACA’s new assistance. Women are at least twice as likely as men to be in those positions, which means they are twice as likely to be 29ers once the new health law goes into full effect.

One of the problems with government policy is never fully grasping the ripple effect of policy changes, which can lead to all sorts of unexpected results. For Obamacare, those results are legion.


Health Care’s Inequality Problem