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.

Paul Krugman: Not Enough Audacity

Not Enough Audacity

By PAUL KRUGMAN

Published: June 25, 2009

When it comes to domestic policy, there are two Barack Obamas.

On one side there’s Barack the Policy Wonk, whose command of the issues — and ability to explain those issues in plain English — is a joy to behold.

But on the other side there’s Barack the Post-Partisan, who searches for common ground where none exists, and whose negotiations with himself lead to policies that are far too weak.

Both Baracks were on display in the president’s press conference earlier this week. First, Mr. Obama offered a crystal-clear explanation of the case for health care reform, and especially of the case for a public option competing with private insurers. “If private insurers say that the marketplace provides the best quality health care, if they tell us that they’re offering a good deal,” he asked, “then why is it that the government, which they say can’t run anything, suddenly is going to drive them out of business? That’s not logical.”

But when asked whether the public option was non-negotiable he waffled, declaring that there are no “lines in the sand.” That evening, Rahm Emanuel met with Democratic senators and told them — well, it’s not clear what he said. Initial reports had him declaring willingness to abandon the public option, but Senator Kent Conrad’s staff later denied that. Still, the impression everyone got was of a White House all too eager to make concessions.

The big question here is whether health care is about to go the way of the stimulus bill.

At the beginning of this year, you may remember, Mr. Obama made an eloquent case for a strong economic stimulus — then delivered a proposal falling well short of what independent analysts (and, I suspect, his own economists) considered necessary. The goal, presumably, was to attract bipartisan support. But in the event, Mr. Obama was able to pick up only three Senate Republicans by making a plan that was already too weak even weaker.

At the time, some of us warned about what might happen: if unemployment surpassed the administration’s optimistic projections, Republicans wouldn’t accept the need for more stimulus. Instead, they’d declare the whole economic policy a failure. And that’s exactly how it’s playing out. With the unemployment rate now almost certain to pass 10 percent, there’s an overwhelming economic case for more stimulus. But as a political matter it’s going to be harder, not easier, to get that extra stimulus now than it would have been to get the plan right in the first place.

The point is that if you’re making big policy changes, the final form of the policy has to be good enough to do the job. You might think that half a loaf is always better than none — but it isn’t if the failure of half-measures ends up discrediting your whole policy approach.

Which brings us back to health care. It would be a crushing blow to progressive hopes if Mr. Obama doesn’t succeed in getting some form of universal care through Congress. But even so, reform isn’t worth having if you can only get it on terms so compromised that it’s doomed to fail.

What will determine the success or failure of reform? Above all, the success of reform depends on successful cost control. We really, really don’t want to get into a position a few years from now where premiums are rising rapidly, many Americans are priced out of the insurance market despite government subsidies, and the cost of health care subsidies is a growing strain on the budget.

And that’s why the public plan is an important part of reform: it would help keep costs down through a combination of low overhead and bargaining power. That’s not an abstract hypothesis, it’s a conclusion based on solid experience. Currently, Medicare has much lower administrative costs than private insurance companies, while federal health care programs other than Medicare (which isn’t allowed to bargain over drug prices) pay much less for prescription drugs than non-federal buyers. There’s every reason to believe that a public option could achieve similar savings.

Indeed, the prospects for such savings are precisely what have the opponents of a public plan so terrified. Mr. Obama was right: if they really believed their own rhetoric about government waste and inefficiency, they wouldn’t be so worried that the public option would put private insurers out of business. Behind the boilerplate about big government, rationing and all that lies the real concern: fear that the public plan would succeed.

So Mr. Obama and Democrats in Congress have to hang tough — no more gratuitous giveaways in the attempt to sound reasonable. And reform advocates have to keep up the pressure to stay on track. Yes, the perfect is the enemy of the good; but so is the not-good-enough-to-work. Health reform has to be done right.