Health Care Costs Bite Big Into Paychecks

Rising health care costs may be taking a bigger bite out of workers' take home pay than many realize. That's something the White House hopes to correct as it lays the ground work for revamping the health care system.

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White House budget director Peter Orszag calls the revamping of the health care system the single most important thing the government can do for the economy. He says it's important in part as a boost to the purchasing power of workers who now see much of their take-home pay consumed by out-of-pocket costs at the doctor or the drug store. NPR's Scott Horsley reports.

SCOTT HORSLEY: Laurie Gross's family has been in the lighting and electric supply business in Toledo, Ohio for 99 years. Her grandfather started the company, Gross Electric, and her father passed it on to Laurie, along with a warning.

Ms. LAURIE GROSS (Small Business Owner): He looked at me one day in his office; he said, one of the biggest issues you're going to have to face in the future of this company is how you're going to pay for health care.

HORSLEY: Her dad was right. With about 60 employees, Gross Electric's health care bill now tops $20,000 every month.

Ms. GROSS: We have always provided health insurance for our employees. I've been with the company 34 years and we've always had insurance, and I have steadily watched how much it costs us go up by astronomical amounts and the amount of coverage that we are capable of providing for our people significantly change.

HORSLEY: Workers at Gross Electric now have to pay more of their own premiums; 20 percent or more compared to just 5 percent a few years ago. But even so, the company's bills keep rising and every extra dollar Gross sends to the insurance company is one less she has for employee pay raises.

Ms. GROSS: There's only so much money at the end of every year or during every year to spread around, and what's going to health care is money that I can't pay people in additional pay.

HORSLEY: Small businesses like Gross Electric are especially vulnerable to rising health care costs because they have fewer workers to spread the risk, but no business is immune. From 2001 to 2007, health insurance premiums around the country soared four times faster than wages. Elise Gould of the Economic Policy Institute says even in the middle of the decade, when the economy was growing, health care costs were a lead wait on workers' paychecks.

Ms. ELISE GOULD (Economic Policy Institute): We're talking about the lucky ones, the lucky ones who had coverage in the first place and got to keep it throughout this whole time period. More and more of total compensation is being taken out by health care. But remember, that's going to crowd out wages.

HORSLEY: White House budget director Peter Orszag has been making that point at every opportunity, reminding those workers who still have health insurance they too have a stake in controlling the costs.

Mr. PETER ORSZAG (White House Budget Director): It is already reducing worker's take-home pay to a degree that I think is under-appreciated and unnecessarily large.

HORSLEY: To drive home how large, Laurie Gross now gives each of her employees an annual statement showing just how much her company has spent on their health insurance. For the workers, she says, the numbers can be surprising.

Ms. GROSS: And it absolutely is invisible. People don't see it. Now, I will say over the last years they've appreciated it a lot more because there's been so much talk and so much press and there's so many people out there with no health coverage. I think people absolutely appreciate it. But it's hard for them to get their hands around how much it is because they don't see it.

HORSLEY: If, and this is a big if, the government is successful in containing costs, Gross says she would be happy to spend less on health insurance, leaving more money she and her employees could spend on other things.

Ms. GROSS: That's what I would prefer: money in their pocket. Have the same health coverage, but have that money in their pocket.

HORSLEY: But that will require that any new system actually reduce the cost of health care and not just add another layer of expense.

Scott Horsley, NPR News, Washington.

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