ferring a portion of the added costs to higher-
wage workers. But that could be accom-
plished only through higher taxes on earnings
at levels far below those that President Obama
has said he would consider in raising income
taxes. All told, then, the second scenario with
unchecked health inflation would lead to dis-
appointing productivity dividends for many
panded to include all workers and their de-
pendents, but (presumably as a consequence
of increased demand for services) that annual
health inflation will accelerate considerably
to a rate six percentage points higher than the
pace of wage growth. This sort of acceleration
in health costs is consistent with the inflation
experienced in the aftermath of Medicare's
implementation.
earnings spectrum but that lower-wage
workers are hit hardest.
based health insurance but realized no reduc-
tion in health inflation (as in the second
scenario) and that Congress raises payroll
taxes sufficiently to bring Social Security and
option assumes that policymakers will deliver
on the benefits assured by current law. The
consequence: wages would decline in the bot-
tom 40 percent of the earnings distribution,
other earnings deciles.
If we do not throttle back excessive health in-
flation, many workers will have to live with
stagnant incomes in coming years in spite of
care reform expands employment-based cov-
erage without tackling cost containment, the
wage issue will be that much more problem-
atic. Indeed, increased access without cost
containment is a recipe for middle-class dis-
content and increased social conflict.
not be sufficient to allow current and future
deliver full Social Security pensions and
Medicare benefits and system revenues under
current-law projections. Adding revenue
from another source say income taxes or
taxes rather than trimming benefits would af-
fect the living standards of those in a position
to pay taxes.
health and retirement insurance schemes
cannot be untied by political rhetoric. But
since neither political party even seems pre-
pared to begin a frank discussion about the
link between workers' future pay and the de-
livery of medical care and public pensions, it
is likely that wage stagnation (or worse) will
remain the order of the day.
recipe for middle-class
discontent and increased
social conflict.