What happened to your pay raise?

Investor’s Business Daily yesterday published an article I wrote for them about how rising health costs are gobbling up the take-home pay of workers who have job-based health insurance.

This helps explain why people feel they are working harder and harder and just can’t seem to get ahead. A recent ABC News/Washington Post poll found that only one in five Americans feels they are getting ahead financially.

Of the nearly $3,000 in pay increases that workers received between 2000 and 2005, they have taken home less than $900 of the money. The rest went to benefit costs that are subtracted from their paychecks before they ever see the money. More than one-third of the average wage increase went to pay for higher health insurance premiums and a fourth of it went to retirement contributions.

Workers are increasingly benefit-rich but cash-poor. Maybe it’s time for a rebalancing. Visibility of the full costs of these benefits, not just their health insurance copayments and pension contributions, would be a big help.

What saved workers from actually going in the hole in the first half of this decade were the Bush tax cuts of 2001 and 2003. Despite all the political smoke screens and finger-pointing, the tax cuts were tremendously important for middle-class households.

As Gary Burtless of The Brookings Institution said in testimony before the Senate Finance Committee last year, "For many middle-class families the [tax] cuts have made the difference between suffering a loss and experiencing a gain in spendable income."

In other words, it was only the direct action of Congress to cut federal income-tax rates which allowed workers to see any of their pay increases at all.

This is particularly relevant as Congress and the White House consider ways to stimulate the economy. How about lower taxes and more options for more flexible health benefits as a stimulus package?

Premiums are rising at a slower rate now as some employers and workers are finding new ways to help control their health costs, including health savings accounts and other consumer-directed health care options.

But if Congress does not act soon, millions of taxpayers will see their tax bills rise after 2010 as key provisions of the 2001 and 2003 tax acts expire. Worse still, millions more Americans will experience a slower economy and slimmer job prospects as the economy adjusts to the higher tax burden on labor and capital income.

If we think consumer confidence is low now, just wait until the federal government takes all of workers' extra pay, and then some…for those lucky enough to still have jobs.

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And speaking of job-based health insurance, USA Today carried an article this week about employers who are moving away from offering health insurance and giving them cash instead.

In the 1980s, major companies began switching from defined benefit pension programs to 401-k plans that offer workers portability and ownership of their retirement savings. Health insurance could operate the same way, but tax policy has to catch up to allow people to get the same tax benefit if they buy their coverage on their own as they do when they get it at work.

There is nothing in the USA Today article to suggest that employers understand that the money they’ve been paying all along in health premiums is actually part of their workers’ compensation packages. Workers need to be made whole by allowing the full value of these premium contributions to be added to their wages.

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Congress has failed, for a second time, to override President Bush’s veto of legislation that would have expanded the State Children’s Health Insurance Program.

SCHIP has already been reauthorized until March of 2009, so the program will continue. But the president prevailed, against all odds, in explaining to the American people that replacing private coverage with public coverage for millions of children in middle-income families made no sense. Covering poor kids first should continue to be the goal.

The next step in reform is making it easier for parents of eligible children to use SCHIP money to put their children on family policies. Wal-Mart announced this week that the percentage of associates who now have health care coverage for 2008 has significantly increased from 90.4% to 92.7%, and the number of uninsured associates decreased by more than 20 percent compared to a year ago.

With some policies costing just a few dollars per paycheck, this could be an economical way for parents to put their children on private insurance that offers much better access to physicians than the public coverage of standard SCHIP and Medicaid.

Wal-Mart, by the way, says that 1.9% if its associates are on Medicaid and 1.2% of them are on state programs other than Medicaid, predominately SCHIP. They would be good candidates for these premium assistance programs.

Grace-Marie Turner

• Waiting for Straight Talk
• New Generation Begins at Zarephath
• Democratic Hopefuls Agree on Medicare as Healthcare Model
• California Health Care Deforminator: Model ABX1 1
• Euro-Canada Health Consumer Index 2008

Waiting for Straight Talk
George Will
The Washington Post, 01/20/08

In the New Hampshire debate, Sen. John McCain said: "Why shouldn't we be able to reimport drugs from Canada?" A conservative's answer is: That amounts to importing Canada's price controls, a large step toward a system in which some medicines would be inexpensive but many others -- new pain-relieving, life-extending pharmaceuticals -- would be unavailable. Setting drug prices by government fiat rather than market forces results in huge reductions of funding for research and development of new drugs. McCain's evident aim is to reduce pharmaceutical companies' profits. But if all those profits were subtracted from the nation's health care bill, the pharmaceutical component of that bill would be reduced only from 10 percent to 8 percent -- and innovation would stop, taking a terrible toll in unnecessary suffering and premature death. When McCain explains that trade-off to voters, he will actually have engaged in straight talk.

New Generation Begins at Zarephath
Bob Makin
Courier News, 01/22/08

For four years, New Jersey’s Zarephath Health Center has helped churches meet the health care needs of the poor, uninsured, and under-insured, writes the Courier News. “We believe it is very difficult for the government to provide cost-effective, high-quality health care,” said Dr. Alieta Eck, an internist who founded the clinic with her husband, John, a family practitioner. The clinic, which sees 100 to 150 patients each month, is located on the campus of the Zarephath Christian Church. The clinic is not charged rent by the church and patients donate what they can afford in a box in the waiting room. Members of Zarephath Christian Church and other churches also regularly make tax-deductible donations. Since opening in September 2003, the clinic’s donations have risen from $15,000 to $50,000. “We believe that ours is a better way,” said Eck, “paying a fair price for services rendered, yet not having to pay the extraordinary premiums expected by health insurance companies in New Jersey, and not expecting overtaxed New Jerseyans to foot the bill for all the uninsured. Everyone wins.”

Democratic Hopefuls Agree on Medicare as Healthcare Model
Ricardo Alonso-Zaldivar
Los Angeles Times, 01/21/08

Hillary Clinton, Barack Obama, and John Edwards all have proposals that would allow Americans of all ages to be able to buy into a government-run health plan modeled on Medicare, writes Ricardo Alonso-Zaldivar. The idea, which would set up competition between a new or expanded government plan and private insurance programs, is one of the most far-reaching and controversial proposals for making health insurance more affordable and more widely available, he writes. Participation in the government plan would be voluntary, but the approach sparks widely differing reactions. Mark McClellan, the former Medicare administrator in the Bush administration, called it a risky departure from the state-based changes that the Democratic candidates have cited as their models. "Of all the states that are considering [reforms], none have set up a public plan to compete with private plans," McClellan, now with the Brookings Institution public-policy center, noted. "It could end up being a back door to single-payer," he added.

California Health Care Deforminator: Model ABX1 1
John R. Graham
Pacific Research Institute, 01/08

Governor Arnold Schwarzenegger’s proposed $14 billion health care plan would likely cost $36 billion in 2010 or two and a half times more than budgeted, according to PRI. The governor proposes increasing health care spending by 7% over current levels with new taxes and revenues from uncertain sources, including the federal government, tobacco, workers’ incomes, and possibly the lottery. If enacted as anticipated, the legislation’s increased taxes will kill between 50,000 and 100,000 jobs in California for each year it is enforced. Graham proposes six alternative reforms to private insurance that will make health care more affordable and accessible to ordinary Californians, including repealing the California “Sick Tax” that taxes Californians for their health savings account contributions.

Euro-Canada Health Consumer Index 2008
Health Consumer Powerhouse and Frontier Centre for Public Policy, 01/08

Canada ranks 23rd for consumer friendliness in health care in the Euro-Canada Health Consumer Index 2008 report. This is the first time that Canada is included in the comprehensive benchmarking among 29 national European health care systems published by the Swedish Health Consumer Powerhouse and the Canadian Frontier Centre for Public Policy. With respect to clinical outcomes, Canada compares well with the best performing health care systems. In terms of generosity, with the exception of the provision of sight restoration surgery, Canada performs poorly, and in the areas of patients’ rights and information, waiting times and accessibility, and the provision of pharmaceuticals, Canada’s performance is in the bottom tier. These factors, combined with a very high level of spending on health care, contribute to putting Canada at the bottom of the Bang-for-the-Buck scale.

UPCOMING EVENTS:

Medicaid Managed Care Summit
January 28-29, 2008
Alexandria, VA
Grace-Marie Turner will participate in the “Executive Roundtable: Medicaid and Health Policy Reform” on the morning of Tuesday, January 29.

Primary Health Care: A Discussion on Presidential Candidates' Health Care Positions
Institute of Government and Public Affairs at the University of Illinois Event
Monday, January 28, 2008, 5:00 p.m. – 7:30 p.m.
Chicago, IL

Hayek and the Economics of Capitalism
Hayek Institut Lecture
Tuesday, January 29, 2008, 6:00 p.m.
Vienna, Austria
For more information, contact the Hayek Institut at office@hayek-institut.at.

Examining HealthCare Vouchers
Oregon Health Forum Event
Wednesday, January 30, 2008, 11:30 a.m. - 1:30 p.m.
Portland, OR

National Medicare Education Program Coordinating Committee Meeting
Centers for Medicare and Medicaid Services Event
Thursday, January 31, 2008, 8:30 a.m. - 12:45 p.m.
Washington, DC

Ask the Experts: Individual Mandates
Kaiser Family Foundation Webcast
Thursday, January 31, 2008, 1:30 p.m. ET

2008 Capitol Conference
National Association of Health Underwriters Event
February 3-6, 2008
Washington, DC
Grace-Marie will speak about the presidential candidates’ health care proposals on Tuesday, February 5.

Health Care Forum
The James Madison Institute Event
Thursday, February 7, 2008, 8:30 a.m. – 4:00 p.m.
Tallahassee, FL
For more information, contact The James Madison Institute at 866-340-3131 or tanja@jamesmadison.org.

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at www.galen.org.

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