Slow growth in health spending still greatly outstrips private worker pay

The federal government has released its latest official health spending numbers showing that national health spending as a percentage of GDP held steady between 2009 and 2011 at 17.9 percent. That's good news, isn't it?

Tell that to private sector workers. Over the past four years, the average full-time private worker has seen average compensation grow by about $1,200 even as the amount of national health spending per FTE private worker rose by nearly $4,000.[1] Ouch!

Why focus solely on private sector workers rather than all workers? Because at the end of the day, the ability of the nation to afford its health care tab rests on the productive capacity of the private sector. Yes, public sector workers earn salaries and even use some of that income to bankroll their own health care. But for the most part, it is taxes paid by the private sector that support such workers.[2]

Likewise, one could quibble that 34 percent of health spending is for the elderly. However, only one-third of that spending is private, the rest being financed through Medicaid, Medicare or other tax-financed sources. And even the private portion is typically financed through savings put away during one's working years.

In short, current workers essentially bear the cost of their own health care, that of their families, their own "future selves," and the care of others paid through taxes. So while it is not a perfect measure, dividing national health spending by the number of private workers provides a pretty good measure of the steadily rising burden of health spending vis-à-vis cash compensation.

In 2011 dollars, private sector workers in 2011 earned about 2.25 times as much as they did in 1951. Health spending per private sector worker, in contrast, multiplied 11-fold during the same period. In fairness, inflation-adjusted health spending per worker did actually decline by $19 between 2010 and 2011. But that's small consolation to workers who saw such spending rise by $2,277 between 2008 and 2009 and another $861 between 2009 and 2010.

These sickening increases reflect the sharp decline in private sector employment in recent years. They help remind us that unless we dramatically expand employment opportunities, the exploding costs of both health care and government will be borne by an ever-narrower base of private sector workers.[3] That's why we need a serious debate about how to grow the pie and ensuring that the share going to government and health care are no larger than necessary. That would be far more productive than a food fight over who should get the most pie.


[1] Let me strongly emphasize that $26,378 is not intended to represent what workers pay for the health coverage for themselves and their families. According to the latest Kaiser/HRET survey of employers, average premiums for single coverage now are $5,615 and for family coverage $15,745 (these figures include both the employee and employer share of the premium for employer-based coverage since it has been demonstrated repeatedly that workers ultimately bear the employer share in the form of lower cash compensation). The survey also reports the shares of workers electing single (46%), single plus one (17%) and family coverage (37%). Assuming that the premium for single plus one coverage is no more than double the premium for single coverage (it likely is less, but the precise figure is not reported in the survey), the weighted average amount for employer-coverage for the average worker is $10,318. The difference between this figure and the $26,378 figure I am using is that my figure includes all health spending, not just spending on employer-provided coverage. Thus, it includes what workers are paying in the form of Medicare payroll taxes and other federal, state and local taxes used to finance health care (including health care for public employees, military etc.).

[2] Admittedly, some government workers perform jobs that are similar to those in the private sector (e.g., the U.S. Post Office, Amtrak, public hospitals, public utilities) and some of these are financed by user fees that are analogous to prices charged in the private sector. However, in FY2011, all but $138.4 billion in federal spending (3.6 percent of $3,818.8 billion in total federal expenditures) came from various income, payroll or excise taxes. Of $2,834.1 billion in state and local own-source spending in FY2008 (i.e., excluding federal grants-in-aid that are financed through the federal revenue already cited), $614.0 billion was covered through charges and miscellaneous user fees, while another $146.4 billion came from utility and liquor store revenues, leaving 73 percent to be financed through taxes. In short, 86 percent of government spending in the U.S. is tax-financed; approximately the same would be true of the wages and salaries paid to government workers.

[3] The labor force participation rate is the lowest it's been in more than 30 years.


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