Health insurance costs and stagnating wages.

I had mentioned in class that the real cost of employees to employers had increased by 25% during this decade and all of that increase was in health insurance costs. I tracked down who said it and where the numbers came from. It came from conservative talking head/former member of the Bush administration David Frum.

Below are two articles that sum up his point. I had originally heard this on "This American Life" which also makes the point that the cost of labor increased by about the same amount during the Clinton years but that was actual income increases.


(From A Blue View) David Frum: The GOP Needs To Understand Bush's Economic Record Was So Poor Because Exploding Health Care Costs Stole All The Wage Gains"

I might add to David Frum's surprising commentary on NPR's Marketplace that the Democrats need to remember this too (listen):

DAVID FRUM: Last week, the Census bureau delivered its report on American incomes in 2008. We can put this report together with the seven previous to reach a final verdict on the economic record of President George W. Bush. It's not good.

In terms of income growth and poverty reduction, Bush performed worse than any two-term president of the modern era. Even in the best year of his presidency, 2007, the typical American household still earned less after inflation than in the year 2000. The next year, 2008, American households suffered the worst income drop since record-keeping began six decades ago.

In my Republican party, there is worryingly little discussion of this damning trend. We do criticize ourselves for over-spending in office. But economic management gets much less, almost zero, internal discussion.

So, what went wrong? Liberals criticize the Bush tax cuts, but it's impossible to see any causation between lower taxes and the failure of incomes to gain ground. All three of the previous major tax cuts in U.S. history -- in the 1920s, 1960s, and 1980s -- were followed by very strong income growth.

The more plausible culprit is the surge in health care costs. Over the years from 2000 to 2007, the price employers paid for labor rose handsomely: on average, 25 percent. Yet for the typical worker, none of that extra cost translated into higher wages.

Between 2000 and 2007, the cost of the average health insurance policy for a family of four doubled, from about $6,000 to over $12,000. That took a big bite out of the gains available for wage increases. More than a bite: the health-care system gulped down every morsel, and forced employers to raise co-pays and deductibles for good measure.

Conservatives and Republicans need to keep this history in mind and remember that when we are debating health-care costs, we are also debating wages, incomes, and by the way, explaining the true reasons for the disappointing economic record of the Bush years.

The Bush Economic Record – Blame Healthcare
September 15th, 2009 at 1:44 pm by David Frum

Ron Brownstein ably sums up the Census Bureau’s final report on the Bush economy.

Bottom line: not good.

On every major measurement, the Census Bureau report shows that the country lost ground during Bush’s two terms. While Bush was in office, the median household income declined, poverty increased, childhood poverty increased even more, and the number of Americans without health insurance spiked.

What went wrong?

In a word: healthcare.

Over the years from 2000 to 2007, the price that employers paid for labor rose by an average of 25% per hour. But the wages received by workers were worth less in 2007 than seven years before. All that extra money paid by employers disappeared into the healthcare system: between 2000 and 2007, the cost of the average insurance policy for a family of four doubled.

Exploding health costs vacuumed up worker incomes. Frustrated workers began telling pollsters the country was on the “wrong track” as early as 2004 – the year that George W. Bush won re-election by the narrowest margin of any re-elected president in U.S. history.

Slowing the growth of health costs is essential to raising wages – and by the way restoring Americans’ faith in the fairness of a free-market economy.

Explaining the impact of health costs on wages is essential to protecting the economic reputation of the last Republican administration and Congress.

If Republicans stick to the line that the US healthcare system works well as is – that it has no important problems that cannot be solved by tort reform – then George W. Bush and the Congresses of 2001-2007 will join Jimmy Carter and Herbert Hoover in the American memory’s hall of economic failures. Recovery from that stigma will demand more than a tea party.