Why Low Growth in Health Costs Still Stings

This was published as a Wall Street Journal Think Tank column on April 8, 2015.


In my last Think Tank piece, I reported that just 3% of Americans felt health costs had been rising more slowly than usual, even though they have been growing at record low rates in recent years. The chart above shows why that might be the case: The gap is widening between growth in wages and what workers pay for health premiums and deductibles. The gap between deductibles and wages is especially yawning, reflecting the steady growth in deductibles seen in recent years. Since 2006 wages have grown 23% while deductibles for single coverage have risen 108%.

The rate of increase in health spending and premiums in recent years is about as low as I have ever seen it. But for most people the pain from health-care costs is more intense, because the divide between out-of-pocket health costs and individuals’ wage growth has widened. Deductibles in particular could be the emerging issue in health policy.

An improving economy with, one hopes, more robust wage growth would help ease the sting of out-of-pocket health costs. But all signs suggest that out-of-pocket health costs will continue to rise faster than worker earnings. No employer I know wants to increase deductibles, if only because raising cost-sharing is so unpopular with employees. But employers have limited options to forestall premium increases, and they know that unless they do so their health premiums will continue to rise and it will be more difficult to raise wages and hire more workers. Ultimately, employers need better ways to control health-care costs.

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