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Small Business Employee Benefits and HR Blog

How Can We Pay for Health Insurance if Our Wages Aren't Increasing?

Many individuals are noticing minimum wages are going up in various states - but are they really increasing? A study by Pew Research Center shows wages actually are not increasing. Why? Inflation. Which begs the question, how will individuals pay for health insurance if wages aren’t actually increasing? This article briefs the trends over the last 50 years in wages, and how individuals can afford health insurance, even with stagnant wages.

A Quick Look at the TrendHow Can We Pay for Health Insurance if Our Wages Aren't Increasing?

Though the national unemployment has declined to 5.6 percent (as of December, 2014),  real wage growth has not exactly been on the rise - in fact, it’s been stagnant over the last 50 years.  

In fact, the graph below shows from 1964 to 2014, current dollars increased from $2.50 to $20.67 - an increase of $18.17. However, in those 50 years, the real wages went from $19.18 to $20.67 -  an increase of $1.49.

Why Aren’t Wages Increasing?

In order to understand why wages aren’t increasing, it’s important to understand the difference between current dollars and constant dollars. The above graph clearly shows that “current dollars” have been steadily rising over the last 50 years. Current dollars is a term we use to talk about our hourly wage without taking into account inflation.

However, “constant 2014 dollars” tells a whole new story. Constant dollars are also known as real wages and take into account inflation. The graph shows these wages have remained steady, and have even decreased at times.

So if current hourly wages are going up every year, how can it be possible that the real value of our salaries haven’t changed? It’s simple. If inflation is causing everything we buy to get more expensive at a rate of 3 percent per year, for example, then even if you’re getting a 3 percent raise every year, you actually don’t have any more money in the bank. Think about it this way: if you get more money every year, but everything you buy gets a little bit more expensive (e.g., how much you pay coffee or movie tickets vs. how much your parents paid), you end up spending that extra money to cover the extra costs of the normal stuff you buy. This, in result, causes you to be making the same wage even though your current dollars (hourly wage) increased.

What Does This Mean for Consumers Needing Health Insurance?

According to the Bureau of Labor Statistics, the cost of employer-provided benefits has risen about 60 percent since 2001 (in current dollars), whereas wages have only increased by 37 percent.

This means that the cost of providing benefits is increasing at a rate that is outpacing the increasing costs of everything else. In fact, since 1999 the average cost of health insurance premiums (for family coverage) has increased by 148 percent.

According to the Pew Research Center, “one theory is that rising benefit costs — particularly employer-provided health insurance — may be constraining employers’ ability or willingness to raise wages.”

So at your job, would you rather have employer-provided benefits, or a real raise?

Getting Your Wages and Your Benefits Too

Thankfully, there is a solution for people who want benefits that aren’t cost prohibitive: individual health insurance. The cost of group health insurance has increased significantly over the last decade, and because of the ACA new options now exist for consumers. It starts with the business owners.

Business owners have the option to reimburse their employees’ individual health insurance premiums rather than offer group health insurance.  This option makes health benefits costs controllable and predictable for employers, while freeing up additional revenue for raises. Current indicators suggest that benefits model may become the new norm in the United States.

Conclusion

It is a scary thought to consider that real wages are stagnating while benefits costs continue to rise, but there are ways to stop this trend. The answer is simple: individual health insurance. Because individual health insurance is, on average, 20% to 60% less than group health insurance, this is a perfect opportunity for business owners to offer healthcare at an affordable price, freeing up capital for other uses.

Small businesses are 98 percent of businesses in the United States and account for a majority of all U.S. sales. If small business owners are able to control their healthcare costs and put that money into increasing wages for their employees, Americans may see a notable increase in constant wages for the first in 50 year.

Have you gotten a raise lately? Comment below.

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