Ezra: Workers Don’t Understand So an Excise Tax Will Work
Ezra has another “workers don’t understand” post arguing for the benefit of the excise tax to fund health care.
There’s good reason to think that if health-care costs can be tamed, wages will rise. But one of the big problems in health-care reform is that workers don’t understand this connection. They think of health-care coverage as a “benefit,” rather than a form of compensation engaged in a fairly zero-sum competition against their wages.
To make his argument, Ezra does the following:
- Appeals to the foundational faith of the discredited economics profession
- Shows a correlation while ignoring other factors to imply causation
- Argues that papers arguing one thing prove their inverse
Given that we’re about to engage in a big battle between the House funding (taxing millionaires) and the Senate funding (excise tax on employer-based health care), I thought it worth examining this more closely–as well as focusing on recent changes in employers’ choices which may–if we have the kind of crappy recovery many people expect–moot all the data that Ezra draws on.
First, the blind faith of economists.
Earlier in the day, I’d been talking to MIT economist Jon Gruber about this issue. “There are a few things economists believe in our souls so strongly that we have a hard time actually explaining them,” he said. “One is that free trade is good and another is that health-care costs come out of wages.” To put it another way: Economists are pretty united on this point. A firm’s compensation for its workers is pretty static, and if relatively more goes to health-care costs, relatively less will go to wages, and vice-versa.
Three things should have tipped Ezra off that this was not a strong argument. First, anytime an expert says, “well, I can’t explain this, I just believe it,” it’s a good sign the expert isn’t drawing on rational argument to support this foundational faith. Furthermore, the yoking of this foundational faith to the value of free trade ought to be another tip-off–so-called free trade, in practice, hasn’t worked out so well for workers in this country. Also note what Ezra is doing: in this quote, at least, Gruber asserts only that “health care comes out of wages,” but from that Ezra asserts a two way relationship, claiming that wages also come out of health care. Perhaps elsewhere in their discussion Gruber offered proof that employers pass on health care savings to employees, but that’s not in the post as written.
Now look at Ezra’s graph, which he honestly admits shows a correlation, not a causation.
Note, first of all, the discrepancy between his title and his graph, which he explains “charts the percent growth in the median household income versus the percent growth in health-care costs since 1990.” Ezra’s not showing (as his title would suggest) the relationship between actual wages and health care costs. He’s showing the relationship between wage growth and health care cost growth. [Update: JTMinIA explains why the raw data v. rate of change doesn’t affect the correlation, but that the correlation doesn’t show a neat match either. Thanks for the correction.] What he shows is that in a period when health care costs have always gone up, wages have sometimes decreased and sometimes increased, but that wages have never gone up as fast as health care costs. I’d need to see the underlying data, but that suggests to me that while health care costs and wages might be related, there is clearly not a one-to-one correlation between them.
And of course, this shows they “might be related.” You’d want to look–at a minimum–at how the relative scarcity of labor plays into this (which might relate to health care costs but also likely relates partly to economic growth) and a bunch of other factors as well. As Ezra correctly points out, growing GDP doesn’t necessarily translate into higher wages. That’s partly because employers have not passed on profits gained through recent productivity gains. But they’ve managed to do that because of increasing labor insecurity. So how does that factor in? Is it instead the case that the relentless increase in health care costs (there have never been “savings” in this period) have transformed the employer-employee relationship and so long as health care costs go up, at whatever rate, employers will never have to pass on “savings” to employees?
Ezra’s also looking only through 2007. You’d also want to look at the last year and a half–which is a point I’ll return to.
Then there are the studies Ezra cites.
There is, in other words, very good evidence that employers pass health-care savings onto employees. A Rand study by Dana Goldman, Neeraj Sood and Arleen Leibowitz examined a particular firm’s response to a period of premium increases and found that “about two-thirds of the premium increase is financed out of cash wages and the remaining one-thirds is financed by a reduction in benefits.” Another study by Katherine Baicker and Amitabh Chandra found that a 10 percent increase in premiums “results in an offsetting decrease in wages of 2.3 percent,” which is fairly impressive given that income is much higher than health-care premiums.
Look at the logical structure of this paragraph:
- “Employers pass health-care savings onto employees” [which is a transition from the previous paragraph]
- Two-thirds of a premium increase is financed out of wages
- A 10% increase in premiums results in a 2.3% decrease in wages
To support his transitional sentence that employers pass on health-care savings to employees, Ezra links to two studies that show something else: that when health care costs increase, employers pay for it out of wages. That is, the studies are making the reverse argument, showing only that increased health care costs result in lower wages.
And just so we know what we’re talking about, here’s the second half of the abstract from the second study:
We estimate that a 10 percent increase in health insurance premiums reduces the aggregate probability of being employed by 1.6 percent and hours worked by 1 percent, and increases the likelihood that a worker is employed only part-time by 1.9 percent. For workers covered by employer provided health insurance, this increase in premiums results in an offsetting decrease in wages of 2.3 percent. Thus, rising health insurance premiums may both increase the ranks of the unemployed and place an increasing burden on workers through decreased wages for workers with employer health insurance and decreased hours for workers moved from full time jobs with benefits to part time jobs without.
That is, this study argues that as health insurance premiums increase, people lose their jobs or become underemployed. Which sort of goes back to my point about the relationship between wages and health care costs: one of the things we need to factor in is the labor supply, because one of the things this study, at least, shows is that increasing health care costs has an effect on the labor supply.
One more thing. These studies are both from 2005. So Ezra’s working with his own data through 2007 and studies from 2005.
Which brings me to Ezra’s assertion that “workers don’t understand” how all this works. Now, he promises to explain that assertion later, and I assume he will make a thorough argument on that point.
But any assertion that “workers don’t understand” what is happening in today’s labor market would need to account for the way the recession is changing the employer-employee relationships drastically, in ways that employers, at least, claim will be permanent. There is some evidence that employers are trying to wring profits out of cuts in both benefits and pay.
Some shifts in the employer-employee relationship have been building for years, but the recession, by making companies acutely cost-conscious, has accelerated them.
“I think we’ve entered into a fundamentally new era,” says David Lewin, of the Anderson School of Management at the University of California, Los Angeles. He describes employers as “leery of long-term commitments,” including both benefits and pay increases.
Now, at least where I live in fly-over country (which, as the economic clusterfuck of the country, may be exceptional), when employers send out letters saying “profit is down so we’re cutting health care” followed a few months later by big layoffs, employees are acutely aware that employers consider benefits and wages as means to achieve profitability. Workers are acutely aware that rising health care costs are leading to job insecurity. And for many employees in this market, it’s not a question of either/or. It’s a question of the package employers (sometimes with employee input) choose as a total cut.
And one of the reasons this is important to discussions about the excise tax is that the changes excise tax proponents forsee in the future, when the excise tax begins to hit Chevy plans, are already happening on an accelerating scale.
This can mean eliminating programs. The percentage of employers offering health-care benefits is 60% this year, down from 63% in 2008 and 69% in 2000, according to the Kaiser Family Foundation.
In a survey by Hewitt last winter, 19% of large employers said they planned to move away from directly sponsoring health-care benefits over the next five years.
In the meantime, workers’ share of health costs is headed up. For next year, 63% of employers that offer health coverage plan to increase employees’ share of the expense, according to a survey of 1,500 employers by another consulting firm, Mercer.
One vehicle is the high-deductible plan. Twelve percent of employers offer such a plan today, up from 4% in 2005, the Kaiser Family Foundation says.
Now, frankly, I don’t pretend to know how these rapid changes will affect projections on the excise tax, though my guess is that it’ll mean the government will be paying much higher subsidies than they expect because there will be a lot more people who don’t get health care through work (particularly if the Senate plan’s lack of a mandate survives). And that by the time employers cut benefits in response to the excise tax in 8 years or so, many of the acceptable cuts to health care will have already have been made, meaning the cuts made to stay under the excise tax will have unacceptable health care outcomes. But, since health care reform auto-enrolls employees, employees may be stuck paying for an employer-sponsored but not funded plan that they cannot afford.
But let’s go back.
What it appears that Ezra has proven is that when health care costs go up, people lose hours and jobs, which drives down wages. He also appears to show that wages never go up as quickly as health care costs. And more recent data seems to suggest that that process may be accelerating–and that employers may be cutting both health care and wages/jobs in a drive for profitability.
It seems that most people agree that the excise tax will increase health care costs, eventually even on the Chevy plans.
Doesn’t that suggest, then, that one of the possible outcomes of the excise tax is increased job losses?
Your claims about graphing change scores, instead of raw score, misses the mark. Which you choose would have little effect on the calculated correlation. That said, a rule on graphing is accurate titling, so it really ought to be “Do smaller increases in health-care costs correlate with larger increases in wages.”
One other stats point: these data are exactly what one needs to address your question about whether savings in health-care costs are used to raise wages. The standard approach is to calculate lagged correlations, in addition to the simultaneous. When I do this (after eye-balling the data), I find that, if anything, changes in wages occur first when health-care costs are rising quickly, and occur second when health-care are rising slowly. This tell me that employers are having their cake and eating it, too.
Doesn’t it depend on what the assumption is? Wage growth here, over time, is roughly the rate of inflation.
So it’s a question of “stagnant” wages or decreasing wages. Which, given that Ezra has only shown that increased health care leads to lower wages (and not the reverse, as he has claimed), would seem to suggest that there is a threshold at which increasing costs will lead to decreased wages, but never “lower increases” leading to higher wages.
There’s never an upside for employees, aside from job security, which they’re losing for health care reasons, but also from the mythical free trade benefits.
Right–and I think that’s the overall point here. Ezra has proven that health care costs are driving wages down, but not the reverse. Now, if employees really did have any control over health care choices in the era of the excise tax, you might argue that by giving them more responsibility for health care costs, they can keep their jobs, and that would be a benefit. But that bc wage growth lags health care costs, they won’t be able to pay for it.
Until we’re talking about helath care costs coming down below inflation costs, it seems like the middle class STILL will be increasingly screwed.
The beauty of correlation coefficients is that they, themselves, assume very little (besides the standard ideas of Normality and equal variance). The assumptions made by those interpreting the values of r are beyond me. Either way, my basic point was that plotting change scores instead of raw scores is not a big deal for this measure.
As to your second paragraph: another rule on correlations (along with most other descriptive stats) is that you need to hugely careful about making predictions outside the range of data on hand. Since the data on hand are all from times when health-care costs were rising, they say nothing – nada – about what might happen if health-care costs dropped.
Finally, I find it quite interesting that employers appear to play it “safe” (i.e., in their favor) on both ends. I.e., they cut wages faster when health-care costs are about to rise quickly and they don’t reinstate high gains in wages until after the health-care costs have stopped growing quickly. What would be particularly instructive is to look at both company profits and/or share-holder dividends on the same time-scale. That extra money has to be going somewhere.
As to more general point, I find the claim that workers don’t understand zero-sum games to be insulting and laughable. While people often “fail” tests for logic when they are presented in the abstract, they almost always “pass” when it’s highly relevant to their lives and presented in everyday terms (see all the research on when people pass or fail Wason’s Task). To be blunt: if you asked 1000 blue-collar workers if they think increases in wages are [inversely] related to increases in company-paid health-care costs, 998 will probably say Yes and the other two will lie because they’re worrying about being fired for being too honest with a pollster.
If healthcare funding comes from wages, then where will healthcare taxes come from? That’s right. Wages. People with healthcare will be taxed on it.
Yeah, I guess I was saying that–as someone who lives among people who are actually experiencing this firsthand–I see lots of anecdotal evidence to show that workers understand it all too well.
The big question is whether they have any power to affect it.
Marcy, you’re a lot closer to the auto industry than I, but haven’t the UAW and other unions had to confront the wages v. health care benefits question in every contract negotiation for the last 40 years? By the end of each round of contract talks, the message from the company was some version of this: “We’ve got a limited pool of money, and we can either give you raises in cash or we can improve the non-taxable benefits. Is there a way to structure this that we can agree on?”
This is why unions are so bent out of shape about taxing big health plans. For four decades, they’ve traded wages for benefits, and now they fear that this tradeoff might end up being clawed back.
Ezra’s claim that workers don’t understand the link between wages and health care benefit costs does prove one thing: Ezra has never really had to negotiate with anyone for his own health care benefits and wages.
Yeah, that’s the argument the unions are making. Of course, that doesn’t really account for how much this has affected wages. That is, the unions have had to give up not just wages for employees, but also net employees to keep that health care. So you could argue that they didn’t know how much wages health care cost.
But then neither of those positions accounts for the effect of competition with countries where employers don’t pay health care directly (and pay far far less), which is the real issue (leading me back to my point about free trade as an economists’ blind object of faith).
Also, having worked in a wide range of industries over my career, I can think of few industries–white collar or blue–where that lesson isn’t obvious. THere’s just been so much cutting in recent years, it’s usually at the forefront of discussions of job insecurity.
I’d say it means that the unions have had to pay a very stiff price to get/keep those benefits, and rather than bolstering the “they don’t know” argument, I’d say it reinforces how much they know about the link. With every contract negotiation and every round of tradeoffs (whether at the beginning or end of negotiations), the link between wages and health care costs got driven home harder and harder.
It’s just a WAG on my part, but I’d say Ezra has not worked in any of those industries.
[Perhaps this is a question better answered by Atrios: what do economics department faculty members think of faculty unions?]
Yeah, interestingly, as much as media companies have been cutting back, they seem to be cutting back primarily through layoffs, not through health care cutbacks–at least that has made the press.
If my eye-ball analysis of the data is accurate (and I’m damned good at it, given years of practice), then they actually provide a somewhat complicated argument that can be used for public-option or single-payer.
You point out that companies have been playing the lag game. They stop increasing wages BEFORE the major increases in health-care costs, and they don’t reinstate the increases in wages until AFTER the health-care costs slow back down. They are gouging their workers on both ends. (If they lagged in the same direction on both sides, then it would be “fair,” but lagging in opposite directions on the two sides is a rip-off from workers.)
If, in contrast, the people controlling health-care-premium costs were not motivated by profits (i.e., weren’t insurance companies and weren’t employers), then I doubt that you’d see this pattern. Given the way the federal gov’t works, I’d predict a positive lag in all cases, which would be fair.
Can you explain why in more concrete terms?
I guess the economists also believe that payments for military defense come out of wages, too? More wars, less wages? ;-)
@8 – nice job with a good point.
OT report on talk by Hersh on the Military Going to War Against Obama.
It’s like what has happened on so many other fronts, he bends over backwards to give the most to the least deserving – whether it’s AIG or McChrystal or torturers or Big Pharam. And then they snicker and conspire to do him in anyway. He has no leadership. Such a finger-steepling empty suit.
My eye-balling of those data says this:
BEFORE a major rise in health-care costs, employers give lower wage increases.
AFTER the major rise ends, they wait a year before passing the “savings” on to workers as larger increases in wages.
This is a case of opposite lags: negative lag for before and positive lag for after. It’s biased in the employer’s favor on both ends.
If, in contrast, wages were not tied to health-care costs and premiums always lagged behind (which is the way the gov’t does things), then workers would not be hit on both sides. They would still have to wait AFTER a major rise ends before they’d see the benefit, but they’d have the advantage BEFORE a major rise, which cancels it out.
OT for bmaz County Prosecutor who tried to hire diGenova and Toensing: What is this thing called ‘legal homework’
Yeah, I saw this coming from the second this story started. That is why I haven’t been all up in arms and carping over it. And the Maricopa County Board of Supervisors is only the front line of attack; the AGs office is also looking at the Toesucker family retainer. This was a dipshit move by Thomas and Arpaio, a couple of the biggest dipshits in the world.
EW – I’ve been waiting for something and haven’t seen it yet. Maybe I’ve just missed it? Surely after Obama’s call for everyone to unify around *the worst bill* someone is going to have an FDL fundraiser to buy him a “Mission Accomplished” banner for his Bushian moment if he leads us to passage of that bill we dislike most?
Maybe in lieu of that flight suit, we can kick in for a disposable hospital gown he can wear for his moment?
Too early! The worst bill is the worst case that we know about now. There are enough positive noises coming out of committee reconciliation process that the worst bill may not be the final bill. Pelosi pushing for a robust public option is a very positive noise.
Ezra, as you more politely point out, is full of crap. Had he ever earned a callous he might understand why.
Workers understand fully that their health “benefits” are deferred compensation, but a special kind, as pensions used to be. They get a modest “income” now in the form of paid insurance, with the promise that that benefit will pay for health care later – no rescission, no pre-existing conditions, no in-plan’s nearest doctor being two counties away, no pharmacist allowed not to fill a prescription because he personally objects to it. As with pensions, workers agreed to the arrangement, in part, because premiums weren’t directly taxable.
The cornerstone of the American medical insurance model since WWII has been that it is obtained and paid for by the employer negotiating a group rate with a faceless employer. No choice, but no major holes. That model developed in the days when most workers stayed with an employer for life – and employers valued that stability. Those assumptions no longer apply. The medical insurance building is crumbling because its cornerstone has been removed. But it still stands and houses lots of people with – as yet – nowhere else to go.
That cornerstone isn’t granite, it’s concrete. Part of the cement holding it together was that insurance premiums are deductible company expenses, not deemed income to employees. You can’t tinker with that without everything else crumbling in consequence. If you do tinker with it in order to rebuild the structure, fine, but you need alternate support to replace what you’ve removed. Just taxing the cost of premiums is like digging out the foundation around a weakened cornerstone without reinforcing either it or the ground around it. Collapse is likely to follow.
Taxing premiums makes them more expensive now without increasing the amount of insurance they’ve purchased. It adds cost while ignoring more obvious revenue enhancers, like reversing Bush’s tax cuts. It is an incentive to employer and employee to walk away from the arrangement. Employers would love to, employees can’t afford to.
Until there’s a credible alternative for employees, leave it alone. After all, the claimed public purpose of this reform is to ensure readier access to health care, not to bolster insuresters profits. If the latter is your goal, Ezra, talk to your cube mate Ceci, she has plenty of ideas. Or keep doing what you’re doing.
Yeah, that’s what we really need to hit head on–the only logical goal of this is to end employer provided health care (though I’m very concerned about the ways that MaxTax requires employers to stay in their employer health care regardless of how bad it is, unless they get their own).
As I said, I think this will lead to more subsidies than MaxTax has accounted for–as the WSJ article points out, one of the easiest ways to stop paying for health care is to turn employers into contractors, which would even get around the teeny penalty MaxTax levies.
All I’m arguing here, though, is we have no fucking clue how excise taxes will change employer behavior, many of the possible options are very bad, and there’s no real tie to the value per cost expended.
At the macro level, what Ezra fails to grasp is the fundamental handing over of the American economy to finance and ‘insurance’ (of all types, from AIG’s underwriting of local municipalities, to healthCos) through the 1980s, 1990s, and up through the present moment. IMVHO, all of these changes have impacted the accounting rules, or anyone’s ability to assess value — whether in the form of goods, services, or wages.
But they trace back to the nexis of political-corporate power, built on a huge amount of lobbying, political contributions, and regulatory agency appointments.
For a quick overview, here’s a bit from Nomi Prins’ “Other People’s Money,” published in 2004; a rather spooky prelude to the problems of the last 24 months, and which set the conditions that Ezra doesn’t seem to fully grasp:
“Only a handful of people in the Senate, the House, the Oval Office, or any of the major regulatory bodies seem to remember anything about passing the enabling legislation that further made the accounting and speculative trading rule-bending of the 1990s easier, or the scores of annual reports or 10K filings that might have signaled the oncoming economic crisis yet were never properly examined. That’s because political contributions also soared in the late 1990s, alleviating the need for clear focus. Political contributions from 1998 through 2000 more than doubled the amount given in the previous eight years.
The amount of clout the financial sectors wield in Washington can’t be underestimated. The FIRE (fire insurance and real estate) sector tops the list of contributions to Washington every year. It has donated over $1.3 billion since 1990, 57% to Republicans and 43% to Democrats….” [pp 12 – 13]
Although I appreciate Ezra’s efforts to try and focus on correlations and specific linkages, to do that without also explaining the absolutely corrupt business practices, the systemic problems that enable a UnitedHealthCare CEO to make over $25,000,000 in ‘compensation’ for the single year of 2007, and the need for Wall Street to retain the highly profitable healthCos as the basis of extremely profitable trading just makes me completely nuts.
Health care costs are a symptom of far more serious economic problems.
Health care costs are in many respects like the wheezing, gasping sound of an economy looted by corporate corruption, tax havens, and money launderers.
I just wish Ezra seemed to make THAT set of associations.
Grrrrrrrrrrrrr……
Ezra seems to be conflating raising revenue via taxing premiums and controlling health care costs. I don’t even see the latter as a focus for the current reform. In any case, it ought to be stage II to that reform, after insuring that Americans have access to health care itself – not just access to overpriced, near-fraudulent insurance policies.
As for my earlier comment about the origins of the current system, the crumbling of its foundations is also due, in large part, to the growing rapaciousness of insurers, who have become as addicted to outsized returns as much as Donald Trump is to hairspray.
Insurers used to broker for a fee the three-way relationships among employer, employee and health care provider. That was a simple, commission-like structure, comparable to old-style banking where banks lent you money and kept the loan until you repaid it. No longer.
Insurers became insuresters when they decided they had the power to decide who gets health care and how much. They stopped being a middle man and took a piece of the action. Their profits and premiums went up as the amount of health care they approved went down.
Imagine how many cars Ford would have made in 1955 or 1965 if the Henry Ford Medical Center determined that pregnancy was an uncovered pre-existing condition and that babies within the normal range of growth were still too fat or tall to be covered at all.
The insuresters’ cancerous role in the medical delivery system needs major surgery. Health care delivery itself needs attention, too. But taxing premiums of those with full benefits treats as a luxury a basic standard of care. If Ezra wants to debate what that minimum standard of care should be – the care Americans expect or Third World visits to a nurse practitioner once a year after the monsoon and vaccines whenever the cargo plane delivering them doesn’t get shot down – we’d be happy to do that, too.
If David Brooks isn’t careful, Ezra will have his slot at the Times. EW correctly points out that employers don’t look at wages alone. They look at total costs of employment: employer-paid taxes, benefits, onsite facilities used by employees to increase productivity, etc. They plan around total costs. If one element goes up, another must come down to stay within targeted total comp. number they budget.
When health care costs rise, employers pay for it by lowering wages or wage increases, cutting benefits (coverage, co-pays, etc.) to keep premiums lower, and by making employees pay a greater portion of the total cost. Savings are passed onto employees about as frequently as personal use of the CEO’s corporate jet. Puhleeze.
slow learner here:
I never really understood why health insurance is tied to workplace, when other forms of insurance are not.
I’m slower than that.
I never really understood why dental, mental(that’s changing), vision, and long term care aren’t part of “health” insurance, when they’re most certainly all part of our health.
Because they are obvious, predictable, frequent expenses that an insurer wants to avoid. That they improve health is irrelevant.
An insurer cares what costs hit its books this month, this quarter this year. When they do, it “harms” them; that it reduces expenses in later years, when they may not be liable as the insurer, doesn’t count. That’s what happens when the middle man takes a piece of the action or, as here, he buys the casino: instead of getting a percentage of the total amount paid, he gets paid more the less that gets paid out.
Oh, I understand why the insurance companies don’t want them included. I just don’t understand how an industry that is supposed to be “regulated” let them get away with it.
Oh well, dumb question I guess, since I just recently learned that in 22 (???? memory bad I think it was 22) states don’t even require health insurance to cover maternity care since that’s “optional.”
We can hate the insurance companies all we want (and I DO!!!), but I’ve gotta believe that insurance companies operating in a well regulated environment wouldn’t be nearly as bad as this. So part of the hate needs to be, as always, placed on our pols who have failed in regulating, and as always, on the people for electing those pols.
Insurers gamed a patchwork of state regulators, as they gamed the employers who were paying them to manage benefits payments (originally, not the medical care itself). It also took quite a while to recognize that the insuresters who bought the casino were the same guys who used to park cars and open and close doors.
Purely historical. It became a common benefit after WWII.
After the devastation of two world wars inside of thirty years, and the deaths of tens of millions across the globe, the fate of the common man became politically more important. Europe instituted national health plans for their surviving populations, a resource that, like education and safe work places, had often been denied in the race for profits. Unalloyed greed was no longer fashionable, what with millions at home, at war, and in the camps having lost and sacrificed.
Truman attempted to create a national health service here in 1947, but lost out. With postwar economic success, unions bargained for and received company-paid health insurance as a non-wage benefit. Likewise with a company-paid pension. With labor in short supply and unions strong, it became a trend and went national.
It went wrong in the 1980’s. Reaganism made screwing workers fashionable, a reversal of the post-war trend. Global expansion of corporations gave them alternative workers and places of production. The reversal took off when the greed common to Wall Street’s pushers of paper became the norm among American business.
Every business from heavy manufacturing to newspaper delivery was bent to produce the same rate and immediacy of return as busting up a company and selling its parts. What happened to Simmons, the once famous bedding company, demonstrates the phenomenon. The company was sold many times in a few years. Each time, profits were extracted and paid for by adding debt. The future earnings needed to repay that mounting debt were never enough – (or meant to be?) – to pay it off. The company went bankrupt, a real game of musical chairs, with the losers being employees, customers, suppliers and the banks dumb enough to still be holding its paper.
One other piece to that story.
Companies began offering health insurance as a benefit at a time when wages were frozen by law to keep inflation down during WWII. Said the companies, “We can’t offer you a raise, but we *can* give you this extra, non-wage benefit.” By the time the inflation-fighting law was lifted, this became the accepted business practice.
And who the hell is this Ezra Klein anyway, and why does he get so much play here at FDL? He sounds like someone who doesn’t have a clue put in a job pretending that he does.
And along those same lines, I’ve my Teevee on MSNBC right now, and how in the HELL did this Chuck Todd ever get to be NBC’s White House Chief Correspondant?
Goddammed the journalism field must be in dire straits these days.
This does prove a little bit of math can be a dangerous thing. Actually, the derivatives, and CDO’s and Secret Life Insurance policies on corporate employees, abused math quite a bit. Who failed more than economists, in discovering these frauds and the Goldman Sachs Taxpayer Bailout Fraud? As a profession, Economists are accomplices to the corporations.
We don’t need no stinkin’ Rand corporation studies or Health Insurance Companies. And we especially do not need corporate economists. We need factories with jobs. and businesses free from impossible “mandates”. We need a national health care system, with health care between doctors, nurses and patients, without a corporate overlord.
So Ezra thinks we should just trust the same corporate vultures who have very nearly destroyed the middle class?
jesus, thought that was Bruno when I saw that pic !
and why does everything he writes these days sound like something overheard in a Gerogetown buffet line ?
damn, I had no idea
that statement is the problem progressives face, we should not be calling these asset reclamaitions “taxing the wealthy” we MUST call it “replacing the middle class assets maketed as an “economic stimulous of reducing taxes for the wealthy”
why the HELL are we claiming that removing the tax give aways of bush are an increase in tax?
they are not increases, they are making certain everyone knows those “tax reductions” failed as stimulous and were middle class assets
we will lose this debate if we call it “taxing the wealthy”
For the vast majority of employers and employees, I think the framing here is completely backwards. Health insurance is tied to the workplace because what’s really happening is that the employer is paying an insurance premium on top of wages in order to ensure (not insure as there is no payout to the employer when sickness happens) that the worker produces the maximum amount of work, by minimizing illness/injury downtime. In other words, juice to ensure (not insure) that the employer receives the max for the wages paid out. And that’s why regarding employer-provided health insurance strictly as wages-by-another-name is inappropriate. Sure, there is the benefit of health maintenance going to the worker & family, but the employer provides health insurance chiefly for the employer’s own benefit, not the insureds’. (The dynamic is different for higher-end jobs, where health benefits are a differentiator for in-demand job seekers, but there are very few of these as compared to the total number of workers.)
I guess employers taking out life insurance on employees is all of a piece with this view.
That analysis goes to why employers might agree to employee demands for a medical insurance benefit. It’s a two-way street for the employer, they get a healthier workforce that’s more productive, and they avoid paying higher direct wages, which improves financial performance and bonus payouts, and avoid driving up indirect costs tied to higher wages. (Back in the day, that would have in included such things as employer taxes and pension obligations.)
As with using bankruptcies to get out from under inconvenient labor contracts, taxing insurance benefits takes away only the part of the deal owed to labor, not the part owed by management. It doesn’t directly reduce what the employer expects in return for providing insurance.
That’s a typically GOP approach – a way to cut the cost of a contract economically without directly challenging it – that the Democrats may find unproductive at the voting booth.
That makes me wonder — if health insurance cost is currently a pre-tax deduction to the employer, like wages, then where’s the benefit to the employers in making employees pay income tax on the HI premiums? Why would they want to support that?
I think the devil’s in the details. If the tax is paid by the employee instead of the company, it’s a cost avoided by the company. A tax paid by employees would lead to demands from employees that the company pick up the cost or pay higher wages, causing intra-firm friction managers would rather not have. But to the extent it gives employers cover to shut down plans and blame it on the government and/or insurers, it helps them.
Employers ought to back any measure that takes current and legacy costs off their hands. Credible national health insurance and health care reforms would do that. But it would come at the price of accepting a role for government the acceptance of which is normally bred out of managers before they make it to the top.
I don’t see why employers should like this tax, either. But as auto companies’ behavior demonstrates, employers have been known to prefer short-term self-destructive behavior at the expense of their long term survival.
EW, this is a really super post. Ezra may have shown that health care costs going down are necessary for wages to go up, but it went over my head when I read the damn thing that he hasn’t shown sufficient.
I also think that Mary means Goldman Sachs instead of AIG because a) AIG is not in a position to turn up their nose at anybody and b) the Fed and Congress control whether AIG gets any more help.
AIG’s current stock price is THIRTY-NINE DOLLARS?
Well nobody will read this but I must vent-Currently if you get employer provided insurance it is not taxed to you. However, if you must buy insurance in the market on your own, you pay with after tax dollars. So if you assume health benefits are wages, such as unions maintain, then they are untaxed wages. Good for the employee. Not fair if you are in the market alone, let alone that the insurance companies rate you different and you pay more because you are not in a group. So some equalization might be appropriate. It could be in the reverse; IE not taxing you on the premiums you pay if you are in the private market. However that doesn’t provide the additional revenue they need for the new bill. But this tact could be a good thing, equalizing the tax treatment on the insurance and then it would be easier to tax everyone for the lost revenue. That way some wouldn’t feel they were getting screwed (unions with the luxury tax, private citizens not getting equal treatment), and then get it all back by taxing everybody the same (progressively of course. Alternatively, we could go single payer and have a combination of sales tax and income tax to pay the bills. Too simple, so obviously beyond our politicians.