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Declining Middle Class Incomes and the Role of Healthcare Costs

April 27, 2014
By

It was reported a few days ago that U.S. middle class family incomes are now falling behind their counterparts in Canada, and Europe is gaining. Here is an example from a report by CBS News:

“While the report confirms what many Americans feel every day when they check their bank accounts — that they’re barely treading water — the eye-opener is how far the U.S. consumer has fallen when compared with other countries. Median per capita income in the U.S. has barely budged since 2000, while Canadians have seen their median income jump 20 percent.”

And what does the financial media attribute this declining income to, especially in a country that now enjoys some of the cheapest energy prices in the world? Pundits listed low minimum wages, recession recovery rates, income disparities between the rich and poor, educational attainment, and government policies for income redistribution in other countries, among others.

Not one story I read mentioned the cost of healthcare.

This continued disconnect between this huge anchor on the American non-healthcare economy and the media’s lack of attention to the issue continues to baffle me. Is this really such a difficult concept to grasp?

A study by the Rand Corporation published in Health Affairs calculated that over the past decade the rise in the cost of healthcare held wages essentially flat, because all productivity gains realized by American workers were sucked into the healthcare industry instead of going into their pockets as wages. My study with Jennifer DeVoe, MD, DPhil calculated that if healthcare costs had just kept pace with the general inflation rate since the managed care era, average family incomes would be $8,400 greater in 2010.

The concept is simple. Employers have a certain amount of money they give to their employees each year. Some of it is income; some of it goes to benefits, which is mostly the cost of health insurance. When health insurance costs go up, wages come down. If we could just force our healthcare costs to be closer to European and Canadian levels, we would easily be the wealthiest large nation on earth across all income strata.

Of course, the problem is that we must fight the healthcare industry’s scare tactics to achieve this aim, which so far we have been unwilling to do.

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