Do Health Care Costs Fuel Economic Inequality in the United States?

Source: David Blumenthal and David Squires, Commonwealth Fund blog, September 9, 2014

The growing debate over economic inequality in the developed world, highlighted by Thomas Piketty’s Capital in the Twenty-First Century, raises an interesting question that is particularly pertinent to the United States. Have escalating health care costs contributed to the huge economic gap between America’s rich and the rest? The evidence, it turns out, is suggestive, but not definitive.
From the perspective of the more than 150 million Americans who receive health insurance through their employers, health care costs may, in fact, be widening inequality. Economists generally agree that employers for the most part treat workers’ compensation in all forms—wages and benefits—as a single expense. When health insurance premiums go up, employers may reduce take-home pay to keep overall compensation in check. Because health costs have grown so quickly over the past several decades, an increasing share of workers’ total compensation has gone toward health insurance premiums. These higher premiums partly explain why middle-class wages have stagnated, lagging productivity gains. Rising health care spending—both on premiums and out-of-pocket costs—totally erased wage gains for a typical family from 1999 to 2009….