Rising Health Care Costs Are Quietly Strangling the Middle Class

By Benjamin Landy

For the American middle class, wage stagnation has been a fact of life for over two decades. Last year, the median household earned just over $50,000—no more, adjusted for inflation, than the median household in 1996 or 1989. That’s in stark contrast to the fortunes of the richest one percent, who saw their annual income rise 50 percent in the same period, from about $592,000 to nearly $879,000.

At the same time, the total compensation received by workers has actually increased over 30 percent since 1980—a statistic frequently cited by conservative economists as proof that income inequality is somehow exaggerated. But the fact is, most middle class families haven’t seen a dollar of that extra compensation. It’s consumed before it ever reaches them by the ever-rising cost of health care—the silent killer of middle class wage growth.

Consider the blue bars in the graph above. The average worker contributed over $3,900 in 2011 towards a family health insurance policy through their employer. That’s about $2,000 more than they would have spent in 1996, adjusted for inflation—a fair price, perhaps, for a decade and a half of medical innovations and slightly longer life expectancy.

But that’s not the total cost. Look at the orange bars. The average employer contribution grew a stunning $6,000 in the same period, doubling from $5,276 in 1996 to just over $11,000 in 2011. Combined with workers’ contributions, that’s an increase of $7,918 in potential annual wages over fifteen years that workers gave up in exchange for moderately improved health care.

Considered another way, the median American household might be earning nearly $58,000 a year, or 16 percent more than they are currently, if the inflation-adjusted cost of health care were frozen at 1996 levels. Median household income would be over $61,000 if workers could simply take their employer’s $11,000 contribution in cash.

For conservative analysts at think tanks like The Heritage Foundation and The Cato Institute, discounting the cash value of employer health benefits is misleading, even deceptive—part of a “declinist” worldview perpetuated by the left to promote redistributionist policies. By this way of thinking, Americans should cheer every time their health premiums increase without a commensurate pay cut, because their “total compensation” has increased.

But this disagreement over how we measure compensation versus take-home pay is about political narratives, not reality. Middle class Americans continue to buy health insurance coverage, year after year, because they would rather pay through the nose than put their family at risk if someone gets sick. As a result, there is little practical difference between a world where workers lose an increasing share of their salaries to ever-costlier health benefits, and one in which workers consistently get raises that go to pay for the same. In either scenario, median post-insurance disposable income is flat or declining.

There are plenty of other reasons why middle class incomes have stagnated over the last two decades. One need only look at the incredible divergence between America’s haves and have-nots to divine the interrelated effects of globalization, disappearing unions, and a tax system that privileges capital over labor. Income inequality would still be rising even if health care premiums weren’t. But as long as middle class Americans—those who aren’t poor enough to receive government-subsidized care and not rich enough to not care—are forced to confront these costs on their own, they’re going to continue getting squeezed. However we choose to define that fact, it’s a crisis hiding in plain sight.

Benjamin Landy is a policy associate for The Century Foundation. On Twitter: @Ben_Landy.

Sponsored Links
Related Articles
October 24, 2013
For Obamacare, Trust in Federal Government <br>Is Key to Success - Kyle Dropp, Molly Jackman, and Saul Jackman
October 18, 2013
How Medicaid Expansion Could Improve <br>Public Safety - Kamala Mallik-Kane
Benjamin Landy
Author Archive