More on Where Your Raise Went

The Obama White House demonstrates how medical inflation vaporized pay increases.

In April, I posted a column (“Against Consensus“) arguing that of all the options under consideration for health care reform, only creation of a “public option”—i.e., a new government health-insurance program that would compete with private health care plans—seemed likely to rein in health care costs quickly and effectively. To demonstrate how dire a problem medical inflation had become, I reproduced a bar graph from the U.S. Health and Human Services Department comparing wage increases during the years 1999-2008 with increases during that same period in employer-sponsored health-insurance premiums. The yellow bar, which showed the increase in pay, was one-sixth the size of the red bar, which showed the increase in premiums. “What this demonstrates,” I wrote, “is that even before the bottom fell out of the economy, almost nobody in the United States got a real raise during the Bush years.” In a follow-up (“Health Haves and Have-Nots“), I explained that since the United States ranks 34th in life expectancy among the nations of the world, it would be hard to argue that these forgone raises bought better health care for the country as a whole.

The bar graph was dramatic, and that’s why I used it. But several readers complained that it wasn’t as precise as it ought to have been and that—since it didn’t give numerical values for average health premiums versus average wages—it was reckless of me to conclude that for the typical American worker the increase in the former had gobbled up the increase in the latter. I felt a little guilty about my methodology while continuing to believe better data would justify my strong language.

Now the Obama administration’s Council of Economic Advisers has produced an excellent chart in its just-released report, “The Economic Case for Health Care Reform.” It covers a slightly different period (1996-2006) and also offers projections for the years 2006-40. I don’t like long-term projections as a rule, but I imagine the data must be decently reliable through 2009, given that 2008 is now past and that the economy is expected to follow a predictable course (i.e., stagnation) for the rest of this year. So let’s focus on the years 1996-2009. The top line shows growth in average wages. The bottom, broken line shows growth in average wages minus average health care premiums.

What do we see? That health insurance premiums reduced wages by somewhere in the neighborhood of $5,000 at the start of President Clinton’s second term; that the combination of a booming dot-com economy and some market discipline temporarily imposed by health insurers through HMOs, PPOs, and the like kept workers’ wages minus premiums on a growth track comparable to that of wages while Clinton built his bridge to the 20th century; that these two lines diverged in the aughts under Bush, with wages minus premiums starting to flatten even before wages alone flattened around 2003; and that wages minus premiums have remained relatively flat ever since. I’m satisfied this chart demonstrates that the average American worker really did lose his raises to health-insurance-premium increases during the Bush years. (In the Obama era thus far, I’m skeptical there’s been much in the way of wage increases to lose. On that score, the CEA’s projections paint a sunnier picture, driven perhaps more by politics than by economics.)

Is the broken line completely flat? It is not. But it’s pretty flat. And I think it would be entirely flat, and perhaps even headed south, if we were to factor in deductibles for employer-sponsored health insurance, which increased by roughly one-third during the same period. You’ll find that information in Figure 4 on Page 5 of the CEA report. I hesitate to reproduce it here because it’s yet another bar graph.