Friday, March 27, 2009

Are medical insurance costs rising faster than wages?

276 words

It is often said that medical insurance costs are increasing faster than wages. This may be a case where it all depends on what we mean by “wages.”

Broadly defined, wages are everything of value provided for a worker by his or her employer. This would include dollars paid to the worker directly, fringe benefits (including medical insurance) where the employer writes the check that pays for them, and accrued rights to future compensation----retirement plans.

When medical insurance costs are increasing rapidly, which has been the case for a number of years, our employer may be increasing the amount paid for our insurance faster than he, she, or often “it” (a corporation) is increasing the amount paid directly to us.

In this case, our medical insurance costs are indeed increasing faster than our wages, but only if we exclude the medical insurance costs from what we consider wages. But the insurance costs are not necessarily increasing faster than our total earnings, since they are a part of those earnings. We are simply getting more of our wages indirectly rather than directly.

Of course if insurance costs rise fast enough, they will outstrip the increase in total compensation an employer may be willing and able to pay. In that event, the employer would either need to decrease the actual amount of cash paid to workers in order to make up the difference, lay off some workers (because they have gotten too expensive), or cut down on the insurance benefits purchased.

The bottom line here is that we need to be very cautious in drawing conclusions from reports that medical insurance costs are rising faster than wages.

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