03-24-08 WP-Rising Health Costs Cut Into Wages by Michael A

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Monday, March 24, 2008; A01
Rising Health Costs Cut Into Wages

Higher Fees Squeeze Employers, Workers
By Michael A. Fletcher
Washington Post Staff Writer
Recent history has not been kind to working-class

Americans, who were down on the economy long
before the word recession was uttered.
The main reason: spiraling health-care costs have
been whacking away at their wages. Even though
workers are producing more, inflation-adjusted
median family income has dipped 2.6 percent --
or nearly $1,000 annually since 2000.
Employees and employers are getting squeezed
by the price of health care. The struggle to
control health costs is viewed as crucial to
improving wages and living standards for working
Americans. Employers are paying more for health
care and other benefits, leaving less money for
pay increases. Benefits now devour 30.2 percent
of employers' compensation costs, with the
remaining money going to wages, the Labor
Department reported this month. That is up from
27.4 percent in 2000.
"The way health-care costs have soared is
unbelievable," said Katherine Taylor, a vice
president for Local 1199 of the Service Employees
International Union. "There are people out here
making decisions about whether to keep their
lights on or buy a prescription."
Since 2001, premiums for family health coverage
have increased 78 percent, according to a 2007
report by the Kaiser Family Foundation. Premiums
averaged $12,106, of which workers paid $3,281,
according to the report.
That is why negotiators for 396 maintenance workers at Georgetown University
cheered last fall after squeezing out wage increases that average a little more than 4
percent in each of the next three years, or between $20 and $40 a week. The real
victory for the custodians, landscapers, plumbers and other workers was the
provision imposing a one-year freeze on employees' share of health-care premiums
and capping premium increases for the least expensive family plan at just under $28.
"Our members are pleased with the contract. Health care is a priority for them," said
Taylor, whose union represents the Georgetown workers. "If you have good wages
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and poor health-care benefits, it is like getting money in one hand and losing it out of
the other."
The runaway cost of health care has long been a concern, largely because of the
huge number of Americans -- estimated at 47 million -- who are uninsured. But
health-care costs are re-emerging as an economic and political issue in part because
of the role they play in the stubborn problem of stagnating wages.
"It is clear that benefits have been the biggest issue on collective bargaining tables
and in company compensation calculations," said Thomas A. Kochan, an economist at
the Massachusetts Institute of Technology. "They eat up scarce dollars, and that
limits the amount of money firms feel they can put on the table for wage increases."
The Democratic presidential candidates, Sens. Barack Obama (Ill.) and Hillary
Rodham Clinton (N.Y.), have laid out proposals for expanding health-care coverage
by requiring most employers to either offer it or pay a fee to subsidize the purchase
of health insurance. Expanded coverage, they say, will lower costs for everyone. They
also support legislation that would make it easier to organize labor unions, something
they say would give workers better leverage in seeking pay and benefit
improvements.
Presumptive Republican presidential nominee Sen. John McCain (Ariz.) has proposed
reining in health-care costs, in part by treating the value of employer-sponsored
health-care plans as income and providing a $5,000 per family tax credit for those
who buy health insurance. He also supports free-market proposals aimed at stoking
competition and giving patients more information, which he believes will increase
pressure on health providers to control costs.
Researchers Ezekiel J. Emanuel and Victor R. Fuchs say that employer-sponsored
health-care plans create the "myth" that workers are getting their health benefits for
little or nothing. But, in fact, "workers and households pay for health insurance
through lower wages and higher prices," they wrote in the March 5 issue of the
Journal of the American Medical Association.
For many workers, health care and other benefits determine whether they stay on a
job. "Raises and health-care benefits are both important," said Carlton L. Scott, a
locksmith who has worked at Georgetown for 26 years. "They go hand-in-hand."
While about three out of four full-time workers who earn $15 an hour or less have
access to health-care coverage on the job, just over half buy it, according to a report
by the Bureau of Labor Statistics. Many analysts say that the cost -- lower-wage
workers pay about a third of the plan premiums with employers picking up the rest --
discourages many from having coverage. By comparison, nine out of 10 full-time
workers making more than $15 an hour have health coverage available, and overall
almost three in four are covered by their jobs.
Employers report that the unpredictable and often uncontrollable cost of health-care
coverage is among their major concerns. Nearly nine out of 10 firms that responded
to a National Association of Manufacturers survey last year named the cost of health
insurance as one of their top-three worries -- ranking it higher than government
regulation, competition from imports or finding qualified employees.
An increasing number of companies are trying to control costs by promoting
employee wellness campaigns and pushing insurance companies and health
providers for more details about their operations.
"Certainly, it is frustrating for the benefit managers and the budgeters," said Jeri
Gillespie, vice president for human resources policy at NAM. "They say, 'my pot is
only so big every year and our health-care costs are rising.' "
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For many employers, the choice is coming down to one between better benefits or
better wages for workers. At TeraTech, a software development firm in Rockville,
president Michael Smith decided early on not to pay for the health insurance his
company offers its 14 employees. Instead, he included more money in his employees'
salaries and offered them the option of buying health insurance, an approach that he
says promotes employee awareness of the plan's costs -- both for workers and the
company.
"I knew health care was a money sink," Smith said. "If people don't see the full price,
they don't realize how much it costs."
After several steep premium increases from his previous health plan, Smith switched
to a health savings account, which allows employees to set aside as much as $7,000
a year in pretax dollars to pay for medical care. The plan is supplemented by a high-
deductible health insurance plan to cover catastrophic events, which costs
employees between $75 and $100 every two weeks.
Even at that, just four of Smith's employees participate in the company's medical
plan. "Nooooo," responded TeraTech office administrator Alison Beman, the mother
of a teenage daughter, when asked whether she took part in the plan. The plan would
require Beman, who is separated from her husband, to come up with the full cost of
her prescriptions, which she said makes it prohibitive. Beman is covered by her
husband's health plan, which, she said, is one reason she has not gotten a divorce.
"I love working here," Beman said. "But if I didn't have that coverage, I couldn't afford
routine appointments, and I would not be able to keep this job."

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53408887.

Monday, March 24, 2008; A01

Rising Health Costs Cut Into Wages

Recent history has not been kind to working-class

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