Wage Rates and Employer Health Benefits in the Future

 

Looking at the coming increases in health care costs, I am starting to wonder how these costs will affect private companies like Pearson. Employers tend to pass off some of the increases in costs like health care by decreasing wages, which disproportionately affects the lowest wage earners. What is the likely outcome in the compensation and benefits arrangement between employers and employees as a result of the increased healthcare costs, increased regulation, and decreased competition?

With the mandate portion of the  Patient Protection and Affordable Care Act (PPACA, aka Obamacare), the lack of competition in the market will do little to encourage consumers in this market to shop for lower cost alternatives, since most people react to rising premiums by looking to alternative providers or reducing the scope of coverage (dropping add-on options and sticking to core needs). By requiring everyone to have coverage which discards deductibles and co-payments, there will be no incentive to cost-compare and look to alternative providers. There is no economic incentive to economize and reduce costs (at the consumer/employee level). (Read: Priceless: Curing the Healthcare Crisis by John C. Goodman)

Another likely effect is that wage increases could decline (and they are currently barely keeping up with the rate of inflation) as healthcare costs rise due to regulatory increases. As production costs increase, driving down profits, and possibly encouraging producers to cut costs in part by decreasing labor costs to maintain prices at competitive and profitable levels. Think of it from the employer's perspective; if the value of a employee decreases, what motivation is there to continue to compensate at unsustainable levels? Wage stagnation is likely to become the norm, but significantly more evident at low wage rates than any other level.

Minimum wage jobs, which are already an issue, could likely see more competition, especially as unemployment rates rise. Employees earning $10/hr (or less)  can not afford $6/hr healthcare costs. Low wage earners need affordable healthcare more than any other class, yet the PPACA can not reduce costs to bring costs down to an affordable level. As is typical of government intervention into markets through regulation and taxation, overall costs tend to rise, which has a variety of other negative effects, primarily increased unemployment rates. The actions that government takes "to help the poor" tend to do them more harm than no action at all. But it sounds good when we hear it on the television. Fining people who do not purchase healthcare is not effective either, as it has the same effect as the income tax in contributing to driving down market efficiencies and causing unemployment (which should be easy to understand, except for policymakers). Subsidies can only exist when driven by penalties.

The rate of inflation is likely to be a hedge against massive cuts in companies which are already profitable. Compensation rates will likely simply begin to decline in effort to prevent labor cuts, which we are seeing in other markets and industries already. Special interests will lobby government like there is no tomorrow when the mandate goes into full effect, which will only further drive up overall costs to employers and employees alike. Imagine what happens at the state level being applied at the federal in this regard.