Would Your Wages Rise Under ‘Medicare for All’?

The following originally appeared on The Upshot (copyright 2020, The New York Times Company). It also appeared on page B6 of the print edition on February 4, 2020.

Hidden in the larger debate over “Medicare for all” is a fundamental economic question: Who pays for work-based health insurance?

For the 157 million Americans who get health insurance through their work — or through the job of a spouse or parent — the answer may seem obvious, evident right on pay stubs. Employers pay most of it, and workers pay some.

Last year, work-based coverage per person cost $7,188, with employees directly contributing 18 percent on average. Family coverage cost $20,576, of which employees paid 30 percent.

But what seems obvious isn’t always what’s correct. Regardless of what’s on your pay stub, many health economists believe that your employer’s contribution toward health insurance comes out of your wages.

So will Medicare for all cause wages to rise if employers have to spend less on benefits? Research suggests the answer is “yes,” with the caveat that it may not be matched dollar for dollar for everyone. The precise relationship depends on the nature of the labor market, which varies across markets and jobs.

The economic theory that explains why employees foot the bill for health insurance is this: Whether it’s in dollars or health insurance, what matters to workers is the total value of their compensation for work. (There are other workplace benefits, but none anywhere near as costly and important as wages and health insurance.)

In a competitive and fluid labor market — where there are many similar employers and workers, and little difficulty in hiring or switching jobs — an employer that tries to undercut the prevailing market rate risks losing workers to competitors. Likewise, a worker who demands more could well be passed over for another who will accept the prevailing rate for total compensation.

“Yes, an individual worker might get a little more or less than market compensation from time to time,” said Steven Pizer, a health economist at the Boston University School of Public Health. “But if employment is fluid, there’s just no way, according to the theory, for that to happen consistently.”

One option under Senator Bernie Sanders’s Medicare for all plan would reduce employer spending on health insurance by $9,000 per employee and raise taxes on the wealthy. Senator Elizabeth Warren’s plan would also raise taxes on the wealthy, but would aim to tax employers an amount intended to match what they would have spent on health care anyway.

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