Two Entrepreneurs Explain Why the Health Insurance Industry Is a Direct Threat to Middle-Class Life

Yves here. In comments, readers were skeptical of Dean Baker’s claim that single-payer health care would lead to higher wages and/or more hiring by freeing up a major expense to businesses. While that may not always be true, this post shows it will be true at least some of the time.

By Joe Sanberg,  a co-founder of Business for Medicare for All and, which empowers customers to match their banking and spending with their values and Richard Master, a co-founder of Business for Medicare for All. and the CEO and chairman of MCS Industries, the leading supplier of mirrors, picture frames and wall decor in North America. Produced by Economy for All, a project of the Independent Media Institute

Among many recent troubling headlines was this one: “Families Go Deep in Debt to Stay in the Middle Class.” That story came on the heels of areport that consumer debt in the United States hit $14 trillion in the first quarter of the year, a level not seen since just before the financial crash of 2008.

To understand how we got here, it’s important to note another finding we feel has been perhaps mostdamaging to America’s middle class: since 1990, health care costs have risen 276 percent as wages, when adjusting for inflation, have barely grown at all.

“Health care is gobbling up your wages,” Axios recently reported, highlighting the fact that as of 2017, nearly one-third of income in the average American household is consumed by spending on health insurance. That’s more than double what insurance cost families in 1999.

Our employer-based health insurance system has created a vicious cycle for working American families and the businesses that employ them. With the cost of prescription drugs and treatment at hospitals rising, insurance companies have not pushed back to lower costs. They have instead passed cost increases onto companies that provide health insurance to their workers. That has forced companies to freeze and even lower employee wages to continue providing health insurance.

Workers, in turn, have not had their wages grow fast enough to keep up with higher costs for housing, transportation, education and yes, out-of-pocket health care costs. That has forced middle-class families to take out record amounts of high-interest credit card debt and unsecured personal loans to pay the bills.

Think of it this way: The cost to attend college, buy a car, take out a mortgage and get needed medical care are all much higher today than 30 years ago. But because tens of millions of Americans receive health insurance through their employer, high health care costs have prevented millions of American families from seeing larger paychecks. That is not true for any other major expense. The money employers otherwise would have given their workers in raises is going instead to health insurance companies.

That positions America’s health insurance companies as a unique threat to the financial well-being of the middle class. As CEOs, we see this exploitation of the American middle class and businesses up close.

In Easton, Pennsylvania, MCS Industries employs more than 150 workers as it generates hundreds of millions of dollars in revenue and leads North America in the supply of mirrors, picture frames and wall decor. We used to make those products in the United States, but we were forced to move those manufacturing jobs to China and Mexico. Ever-rising health insurance costs are a reason we have to move jobs overseas. And those uniquely American costs are preventing us from bringing jobs back to Pennsylvania. In 2000, health insurance costs were 7 percent of payroll at MCS. They are now 22 percent of payroll. If we could eliminate the profit margin and administrative waste of health insurers, we could bring jobs back to this country and increase workers’ pay.

In California, entrepreneurs are constantly pitching investors on the company they believe will be the next Google or Uber. But health insurance is often a hurdle for innovators. It’s difficult to leave a job with health insurance to launch a new company when you could go months or years without health benefits. And for established start-ups, providing health insurance to employees is at the center of a fight between gig companies like Lyft and Uber and the state of California. Drivers are finding health insurance increasingly unaffordable, while gig economy companies are struggling to provide insurance to employees who come and go and work between a few hours a month and 40-plus hours a week. The United States is unique among rich countries in tethering access to health care to the workplace. If we could follow the lead of those other countries, these problems would go away.

At the center of this problem are America’s health insurance companies. Until we decouple health insurance from employment, employers and workers will continue to bear the undue burden of outrageously high health care costs. And skyrocketing insurer profits will continue to force middle-class families to run up credit card debt to survive as employers struggle to increase wages.

We need a single, national health care payment system to offer relief to American businesses and workers. By taxing companies and workers fairly, and removing the waste and profiteering from health insurance companies, we can unshackle the middle class and American companies from a cycle of stagnant wage growth and growing debt that threatens our economy.

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  1. Bill Carson

    I’ve often thought that the real push for Medicare for All—the tipping point—will come when employers start to realize how much money they could save by pushing the burden for providing health insurance off of themselves and onto the government.

    1. GM

      That might happen, but I doubt they will then pass on the savings to the workers as increased wages.

      There is also another thing to consider — the current situation has been convenient for employers because it provides powerful means of control over the workers. Which the article talks about but does not present properly, You have to think very hard over whether you really want to quit your current shitty job when you know you will lose your health insurance if you do so. And that threat has been used by employers to force various concessions from their workers again and again.

      In principle there should be a point where the medical industry (it’s not just the insurance companies, this has to always be remembered, those actually account for only a small fraction of the overall rent extraction from the rest of society that is associated with healthcare; hospitals, big pharma, etc. play a huge role in this too) takes too much money from the other industries and where the limits of outsourcing have been reached. And then one could expect a reaction. But where exactly that point lies is difficult to tell and depends a lot on what the limits of outsourcing (and, very importantly, automation) will turn out to be.

    2. PlutoniumKun

      I think US companies with branches the US are aware of this – I’ve heard it mentioned more than once by people I know who work in company relocations, that healthcare costs are an increasing factor in deciding where to invest. Or put another way, companies realise that in countries with good public health systems, their overall employee costs are significantly less. Likewise, European companies have had a shock when investing in the US to realise just how much they have to pay above wage costs in order to give staff even limited coverage.

      I suspect the reason companies don’t publicly agitate more for public health is that they don’t like conceding the argument that sometimes the public sector is actually far more efficient and better. So they keep quiet about it. But at least it means that the private medical sector might find they have fewer friends than they think when it comes to campaigning against medicare for all.

      BTW, another factor that’s also overlooked is that the US system actually means higher taxation – the US actually spends more on its crappy public health provision than many European countries, including the UK with the NHS. Only Norway spends more as a percentage of GDP!). So companies have a double whammy in the US – higher taxes for health plus higher direct costs.

    3. Kurtismayfield

      They will never give up the control. They know what they have over the workers who they employ. Look what happened the minute the GM UAW workers striked.

      General Motors has dropped health-care plans for tens of thousands of striking workers, a move that underscored tensions between the two sides as negotiations continue two days into the stoppage.

      The United Auto Workers, which represents the roughly 49,000 workers whose walkout has effectively halted GM’s production in the United States, released an internal letter Tuesday that said it had been given notice that the company had stopped health-care benefits because of the strike.

      This is a powerful means of control over a populace,

      1. XXYY

        It’s also a huge and very visible argument for Medicare For All. Do you want your employer, whose interests are adverse to yours, deciding whether or not you have healthcare?

        In a cruel and horrific way, the timing of GM’s action to literally kill it’s workers for going on strike is clarifying what’s at stake in the 2020 election to the US population.

  2. Bob Hertz

    Many good points here, but I do want to raise one thought:

    Any single payer plan will likely require a substantial payroll tax. If the tax is ten percent, some firms will be better off than today, but millions of firms will be worse off. About 3 million firms provide no health insurance at all– they will be in crisis. Many other firms provide health insurance to only a minority of employees today. (I was a health insurance broker so I know this first hand.)

    It will not be a simple or smooth transition, and wages may not go up al all in many firms.

    Final note, not a huge item. Yves I do not see skyrocketing insurer profits in the under 65 market. Mosf firms lost money on ACA plans, and the group market is very competitive in many areas.

    1. kramer

      I’m don’t think those 3 million firms will be worse off. How do their employees currently pay for healthcare? I bet most of these employees would be much better off with a medicare for all system, even if those 3 million firms pass the payroll tax on to their employees. There are other ways to help pay for it besides just a new payroll tax. (VAT, much higher rates on high incomes, taxing of capital gains as ordinary income)

    2. XXYY

      FYI, Pramilla’s Medicare for All Bill in the House specifies that businesses pay either (a) 7.5% of payroll, or (b) 75% of their current contribution for employee healthcare, whichever is more, with the first $2 million of annual payroll exempted.

      So (1) small business with less than $2 million payroll will pay nothing, and (2) businesses that currently provide healthcare benefits will save 25%. Only businesses that don’t currently provide healthcare, which have been cruelly free-riding on their workers’ health up to now, will see some (pretty small) increased costs.

      Overall, I don’t see a lot to complain about and a ton to like for business owners and for the people of the US.

    3. kiwi

      What do you mean by ‘payroll tax.’ A tax paid by the employer or by the employee?

      Your comment implies that the employer would pay the tax, but this is not necessarily true, depending on how everything shakes out.

      And when you say employers ‘provide’ insurance, it is not necessarily the case that employers are paying for the entire cost; many of them split the cost between the employee and employer.

  3. antidlc

    Two points:

    1) I don’t know why the Medicare for All supporters aren’t making a big deal out of the fact that large companies and institutions SELF-INSURE. They self-insure because IT’S CHEAPER. Companies figured this out a long time ago. We need to self-insure as a country.

    2) Do we know if companies are using their employee health insurance as profit centers? Are they charging the employees more in premiums than are being paid out in claims? Any way to check if this is happening (maybe on the Form 5500 or something?) We know the insurance companies are making money off the system. Are the companies making money off of it as well?

  4. No Gig

    Indeed, health insurance costs are a direct driver in both outsourcing and ageism.  A widely promulgated study by big three consulting tied employee costs directly to age (driven by health insurance and pension costs). Shortly thereafter my Fortune 100 company mandated hiring anyone past mid-forties required approval by an executive vice-president and the director of HR.   

    Within six months one-third of the IT department was laid off and replaced with H-1B workers from India. All laid off were over age fifty except one.  The one was an administrative only transfer of a twenty-something to sidestep EEOC guidelines.  Engineering departments also saw widespread layoffs with outsourcing and ageism.

    The above actions were widespread across corporate America — and continue.

    1. stan6565

      Do the H1B imports have health insurance and who pays for that.

      If their takings are dramatically lower than those of native Americans (not the real native, but current native), so to justify such large scale corporate shenanigans, I wonder what kind of health care do they receive. And at what cost. And who pays for that.

      Or do they only arrive in the perfectly-healthy-for20-years packaging, after which they can also be dumped in the ditch (like the current natives).

      Or if the ditch is too expensive, who pays for transportation back to the point of origin.

      1. Hepativore

        As far as I understand it, the majority of H1-B workers are not on their employer’s healthcare plan because their positions are classified as “temp” or “contractual” at the companies that make use of them. When I worked for WuXi Apptec, that is what they did with the H1-B workers that replaced full-time laboratory technicians like us when they brought them in.

  5. Susan the other`

    Has any info been made public on who the owners/shareholders of the medical insurance companies are? Are they owned by hospitals, medical associations, individual clinics and doctors? It would seem an excellent investment for them – until now. It might explain why med insurance is so difficult to dislodge.

    1. Dwight

      401(k)s, too. For most people, eating themselves or their families, figuratively speaking, but this may not be apparent.

  6. KLG

    I attended a meeting in 1978 where the late, great Michael Harrington spoke to a group of mostly starry-eyed 20-somethings. One of his major points about working life was that “job lock” through health insurance kept people from doing what they wanted to do. This is not a new thing. Late Neoliberalism has made it much worse, though.

    More recently I asked a good friend who runs a very successful small business with 15-18 employees, some of whom have been with him for 30+ years, whether his life and his business would be better off if the provision of health insurance (sic) to his employees was not his responsibility. He couldn’t see past the “government takeover of health care.” Alas.

    1. kiwi

      Next time, ask him what is worse – a government bureaucracy or an insurance company bureaucracy. I guess he hasn’t experienced the insurance bureaucracy.

  7. teacup

    It’s funny (sad) how the corporate press and mainstream hack economists cry about the threat of inflation and then never point out the three biggest inflationary costs in my lifetime – financially privatized natural monopoly costs – healthcare, education and housing – and thus why banking, another natural monopoly is crapified – future students are kept in the dark on purpose, compartmentalized, atomized, taught about economics being value-free…
    As Michael Hudson has pointed out, Simon Patten, the first Professor at the University of Pennsylvania’s Wharton School of Business had called for a fourth factor of production, government infrastructure, to reduce the public’s overhead costs to allow for capital to flow more freely. The current rentier capitalism is financialized cannibalism.

  8. Tim

    “claim that single-payer health care would lead to higher wages and/or more hiring by freeing up a major expense to businesses.”

    How would it not? I work for a major corporation. This year they spent money on a company wide survey to see where they want their total compensation allocated. Inclusive of salary, days off, medical out of pocket, deductibles, retirement, etc. Every year employees get a snapshot of their total compensation from the company. Including medical benefits.

    If we get single payer, I expect to get every dollar my employer contributes to my medical costs back as salary, if only because they know that we already know that they know how much it costs and consider it part of our compensation. I expect my gross paycheck to go up and my net paycheck after taxes to go down. And for my out of pocket savings to make up the difference, and for my ALL fellow citizens to have health care.

    1. kiwi

      Your scenario makes the most sense. Just have the employees pay for insurance (or a tax to fund an insurance pool) and adjust their wages upward.

  9. Summer

    The prices and costs are a threat to life – not just “middle class” life. And they are confirmed killers, so past the threat stage.

  10. run75441


    I have not had a chance to go through this yet. Here is the report the authors may be drawing from to make their observations. A Cancer on the American Dream

    This is in reference to ACOs: “We found that in the period 2007–14 hospital prices grew substantially faster than physician prices. For inpatient care, hospital prices grew 42 percent, while physician prices grew 18 percent. Similarly, for hospital-based outpatient care, hospital prices grew 25 percent, while physician prices grew 6 percent. A majority of the growth in payments for inpatient and hospital-based outpatient care was driven by growth in hospital prices, not physician prices.” as taken from the Commonwealth funded Health Affairs study.

    This is in support of the author comments: “According to data from the Henry J. Kaiser Family Foundation, total health spending on the privately insured in the United States increased in real terms by nearly 20 percent from 2007 to 2014. Growth in health spending on this population can slow wage growth, increase the scale of federal subsidies for insurance bought on the Marketplaces, and make it more difficult for people to access health care services. Previous work suggests that in the short run, growth in health care providers’ prices plays a larger role in driving growth in health spending on the privately insured than the role played by changes in case-mix or utilization.” which relates to the rising cost of private (employer funded) healthcare insurance.

    This is why ACO/Major Hospitals such as University of Michigan can get away with this. They buy up the competition: “A measurement of the competitiveness of a hospital within a certain area of the country is done utilizing the Herfindahl-Hirschman Index (HHI). It has been used to measure competition in and around cities. The results of the HHI revealed an increase in the concentration of hospitals from mergers and acquisitions, going from moderately concentrated in 1990 with an HHI numeric of 1570, to more concentrated in 2009 with a HHI of 2500, and with some cities purely monopolistic at 10,000.

    Rigorous action by the FTC would certainly go a long way in improving compositeness; however, the FTC has been purposely understaffed by cutting its funding. In place at the FTC is a staff 22 lawyers and economists to monitor a $3 trillion healthcare industry. It is too understaffed to take on such a large industry which would overwhelm it with legalese and paper. Maybe in the next election will bring forth the right person to take on healthcare.”

    A big to do was made when the Mayo Clinic moved a branch Maternity care unit back to Rochester, MN rather than leave it in a rural setting. Maternal Mortality is an ~ 27/100,000 deaths in the US. Canada is at an ~7/100,000 deaths. It is even lower in Europe. So we pay more for it and get crappier care.

    You can get a freebie copy of the Health Affairs article at the Commonwealth (they funded this) site. Hospital Care Prices Rose Faster Than the Cost of Physician Services Scroll all the way down to the end and you will see “Read Full Article.” This article covered the time period from 2007 – 2014. It was written February 2019.

    I apologize for high jacking your thread. I thought this may be helpful. The more “we” all know, the more we can force the issue. Any new healthcare law which does not attack costs and prices before we move to single payer which implies the government sans insurance and ACOs will result in the same as what we have today..


  11. Rob’t Post

    We need to abolish the concept of health insurance. Insurance is brought to protect one from an unlikely but serious events. It is not unlikely that one will need healthcare, it’s a virtual certainty. In this situation, it is more akin to prepaying some of the care one will need rather than a hedge against illness. In a standard insurance scheme, the people who don’t have a fire pay for those who do, the accident free pay for the accident prone. But what happens when everyone has a fire or gets into a traffic accident? The whole scheme collapses, just as is happening in the realm of health ‘insurance’.

  12. Sleeping Dog

    The salient issue isn’t the cost of insurance, who pays for it or how it is delivered. The real issue is the cost of medical care and until the we (the global we) tackle that problem, health insurance will be unaffordable for many.

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