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Employer Health Costs in a Global Economy: A Competitive Disadvantage for U.S. Firms

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Employer Health Costs in a Global
Economy: A Competitive Disadvantage
for U.S. Firms
Len Nichols, Ph.D.
Director, Health Policy Program
New America Foundation
May 9, 2008
Washington, D.C.
New America Foundation Health Policy Program
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Figure 2: Employer Contributions to Private
Health Insurance, 1960-2006
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Percent of Wages and Salaries
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, Tables 7.8 and 2.2A-B
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Figure 1: Compensation Share of GDP, 1960-2006
40%
45%
50%
55%
60%
65%
70%
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Other Benefits
Health Insurance
Wages
51.8
0.65
3.84
45.6
4.07
6.71
56.14
58.9059.43
55.56
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, Tables 1.1.5, 2.2, and 6.6
New America Foundation Health Policy Program
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“What, me worry?”
Source: http://home.earthlink.net/~roygmisc1/anecdotes1/worry1.jpg
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Table 4: Employer Contribution Rates and Hourly
Cost of Health Benefits, Selected Top Trading
Partners, 2005
$0.96$19.794.9%Weighted avg.
$2.17$16.9312.8%****France (9)
$0.40$20.911.92%***United Kingdom (6)
$1.70$25.536.65%**Germany (5)
$0.68$18.063.74%Japan (4)
$0.86$19.214.5%*Canada (1)
$2.38$18.32
11.3% overall
13.0% for
Manufacturing
United States
Hourly Cost of Health
Benefits,
manufacturing
Hourly Pay,
manufacturing,
Employer Contribution
Rate
Country
(rank in trade with the
US)
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Sources for Table 4
Data for the “Employer Contribution Rates and Hourly Health Cost of
Health Benefits…” comes from:
U.S. Census Bureau, Foreign Trade Division.
International Social Security Association, Social Security Programs
Throughout the World, 2005(Canada) and 2006 (all other countries).
Bureau of Labor Statistics, International Comparisons of Hourly
Compensation Costs for Production Workers in Manufacturing,
November 2006.
Key to Table 4
* Maximum, varies by province
** Also finances cash sickness and maternity benefits
*** 15% of 12.8% employer contribution is allocated to the National
Health Service
****Also finances cash sickness, cash maternity, disability, and survivor
benefits.
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Why the Difference?
Driving factors:
Employer share
Inefficient health system
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International Comparisons, 2004
15.4%$6,096U.S.
10.5%$3,040France
10.6%$3,171Germany
8.1%$2,560U.K.
7.8%$2,293Japan
9.8%$3,173Canada
Percent of GDP spent on
health care
Per capita cost of health
care
Sources: World Health Organization, “Core Health Indicators.”
New America Foundation Health Policy Program
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Employment Share by Industry, 1960-2006
0%
10%
20%
30%
40%
50%
60%
70%
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Manufacturing
Retail Trade
Transportation
Information
All Service Industries
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Annual Industry Accounts, “Full Time and Part-Time Employees by Industry.”
New America Foundation Health Policy Program
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Value Added per Worker, 1998-2006
$93,683.62
$152,714.70
$85,736.50
$59,251.55
$95,730.93
$78,756.10
1998
(in 2006 $)
$105,095.47All Services
$209,590.48Information
$90,682.35Transportation and Warehousing
$61,351.47Retail Trade
$110,898.81Manufacturing
$89,573.76All Industries
2006
(in 2006$)
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, Annual Industry Accounts, “Full Time Equivalent Employees by Industry” and
“Value Added by Industry.”
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Policy Implications
Reducing the employer role is good health
policy and good economic policy.
But, we must extend the advantages of the
employer system for all Americans.
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Sources
Len Nichols and Sarah Axeen, “Employer
Health Costs in a Global Economy: A
Competitive Disadvantage for U.S. Firms,
New America Foundation, May 2008.
Contacts:
Nichols@newamerica.net
Axeen@newamerica.net
Additional Information
New America Foundation Health Policy Program
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Table 1: Change in Compensation Share of
GDP by Decade, 1960-2006
0.69%0.13%0.71%0.89%0.36%
Health
Insurance
0.38%-0.64%-0.53%2.34%1.18%
Other Benefits
-3.58%0.79%-2.05%-4.12%0.80%
Wages
-2.51%0.28%-1.87%-0.88%2.36%
Total
Compensation
2000s1990s1980s1970s1960s
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, Tables 1.1.5, 2.2, and 6.6
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Figure 3: Employer Health Costs, 2007
11.5%
9.9%
18.3%
14.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
For all workers For workers in offering
firms
For eligible workers For enrolled workers
Percent of Payroll
Sources: Authors’ calculation based on payroll data from the U.S. Department of Labor, Bureau of Labor Statistics, Employer Costs for Employee
Compensation—September 2007, released December 11, 2007; Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2004.
Note: Health Benefits are employer contributions to private health insurance; payroll includes wages and salaries, paid leave, and supplemental pay.
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Table 2: Relative Unit Health Costs of Selected
Industries, 2004
114.8111.0Accommodation and food
services
122.9103.1Information
152.1140.6Transportation and
warehousing
100.096.3Wholesale trade
105.8104.1Retail trade
138.8123.5Manufacturing
106.8100.0All industries
Active workers and retireesActive workers only
Average = 100
Sources: Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2004; U.S. Department of Commerce, Bureau of
Economic Analysis, National Income and Product Accounts.
Note: The unit health cost is calculated as employer premium contributions divided by value added (net output).
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Table 3: Trade Exposure of Selected Industries
2.6%0.3%All service industries
2.8%0.5%Information
10.7%2.0%Transportation and
warehousing
0.0%0.0%Retail trade
13.5%29.5%Manufacturing
8.8%7.8%All industries
Export shareImport share
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, December 2006, table 15.
... 1 Indeed, nearly all large US firms (with over 200 employees) offer health care fringe benefits, as do roughly 60% of small firms. In total, 177 million Americans are covered by employer sponsored health care today (Nichols and Axeen, 2008). Yet by outsourcing health care, the US government ties the welfare of working age individuals to the welfare of companies. ...
... However, there are three clear reasons why this argument breaks down in practice. First, in the short term this cost shifting may not possible due to sticky wages and, in particular, union contracts (Nichols and Axeen, 2008). Second, much of the burden from health care 5 Source: Authors' calculations from the Centers for Medicare and Medicaid: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/2004-age-tables.pdf 6 In this discussion we focus on US employers and ignore the large role played by the US government in the provision of its social health insurance programs Medicare (for the elderly) and Medicaid (for the poor). ...
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