The Health Care Cost Issue Isn't Going Away
November 10, 2009
Health care benefit costs continue to affect salary planning. ERI’s perspective is mathematical, as reflected in the Rule of 72. Divide a percentage (%) into the number 72, and you get the approximate number of years for a sum to double. Much is written about the rise in US health care costs as compared to wages. ERI sees it as simply a mathematical problem.
On average, health care costs double every 7+ years at 10%, and average workers’ wages double every 24 years at 3%. In 1967, health care costs were but 5% of wages. Mathematically, there are only so many dollars to be expended on employees’ labor costs. We can debate the when and how, but someday soon the cost of employees’ health care will exceed average salary/wage costs because of the Rule of 72. It is a mathematical certainty. An important policy question is whether the US can be competitive on the world market with benefit costs increasing unabated. The February Stimulus Bill provided funds for coverage of the uninsured; covering all via insurance premiums does not affect underlying health care costs. A hidden policy question relates to the loss of income tax receipts (% of salaries).