Mark Warshawsky on Compensation, Health Care Costs, and Inequality

Rising Costs

The rising costs of health care significantly impact workers' compensation, especially for those with lower incomes. Mark Warshawsky explains that while health insurance costs are the same for all employees, they represent a larger share of compensation for lower-paid workers. This disparity means that as health insurance costs rise, the take-home pay for lower-paid workers increases less than for higher-paid workers 1. Warshawsky highlights that from 1999 to 2014, employer health insurance costs tripled, affecting the measurement of inequality if only earnings are considered 2.

The percentage point increase as a share of compensation was almost four times as much for low-paid workers as for high-paid workers.

--- Mark Warshawsky

This illustrates how health care costs disproportionately burden lower-income workers, complicating assessments of economic progress 3.

   

Tax Benefits

Employer-provided health insurance offers significant tax advantages, making it more appealing than personal insurance purchases. Warshawsky notes that most benefits provided by employers are not taxed as income, which incentivizes both employers and employees to prefer these benefits over salary increases 4. This tax advantage contributes to the persistence of employer-provided health insurance, despite its rising costs.

The motivation was that they're meant as a type of incentive or a type of encouragement to the employer and to the employee to demand these benefits.

--- Mark Warshawsky

Russ Roberts points out that while some employers have dropped coverage, the tax benefits still make it a prevalent choice 5.

   

Mandates

Government mandates on worker benefits, such as health insurance, often lead to unintended consequences. Russ Roberts argues that mandating benefits is not a free lunch, as it typically results in lower take-home pay for workers 6. This is because employers offset the cost of mandated benefits by reducing salaries.

Benefits aren't free; they come out of the salaries of workers.

--- Russ Roberts

Warshawsky adds that despite the high cost of health care, workers value insurance for its risk coverage, making employer-provided plans preferable to individual market options 7.