When people ask you what your income is, you usually respond with your salary/wages. The gross amount on your paycheck prior to taking out income taxes and payroll taxes. But depending on where you work, this is only part of the story. There is a lot of economic research that basically says when a company spends money on health care, on 401(k) matches or on any number of other employee benefits, that is a substitute for wages. Thus it is important to include that in compensation calculations and also important as an individual to think about whether non-wage compensation provides as much utility as that money would do as wages.
In my own case, total compensation is about 133% of my salary, with the addition mostly in the form of health insurance, 401(k) match, and the employer part of FICA taxes. In this case FICA is unavoidable (and social security and Medicare are generally speaking, very good uses of compensation in a broader perspective). The 401(k) match is optional, but not something I could take as wages. This, I imagine, is because my employer gets a tax benefit for offering the match so taxpayers generally bear the burden of incentivizing me to save for retirement. Even if I could get a portion of this in wages, it is probably best, again in the broader perspective, to take this compensation as retirement savings rather than wages.
Then we get to health care, and this is the relevant one. I happen to know exactly what my company is paying for health insurance. Indeed, since I can choose to take it as wages instead of enrolling in a group plan (and perhaps go enroll in a cheaper plan, especially given my relative youth) I do have the incentive to be a discerning consumer of health care.
There is good evidence that expensive health insurance plans do not necessarily produce better outcomes, so taking more compensation in that area rather than as wages is not necessarily productive. It is also common for the employee not to be given such a clear indication of the cost of health insurance to an employer, nor the option to take it as wages and shop around. Many employees don’t have a choice of insurers…they either accept what their work offers or receive no benefit whatsoever. This makes them rather less involved in cost consciousness. By not seeing the cost of health insurance and not getting any clear wage benefit for reducing that cost, they don’t have any direct incentive.
This is what the Senate health bill’s excise tax on expensive plans is meant to do, further push plan costs down over time by making the plans more efficient. This will bend the cost curve for health insurance, but it will also increase worker wages, compared to if the tax isn’t included.
In my case, my distrust of the individual market (and a few preexisting conditions) makes me settle for the cheapest group option provided through my employer, but the way they handle insurance makes me think about it a lot more than I might at most other employers. If we get reasonable health insurance reform and I am permitted to enter into the exchange, it is quite possible that I can find a plan that suits me even better.
This of course is the beauty of the Wyden Choice Amendment to expand the exchanges. The combination of a healthy exchange and more employers switching to this model of defined contribution that can be used for wages or premiums (and expanded use of HSAs) could really do a lot to make health insurance costs more explicit and raise political support for even stronger cost control measures. Only when people see their personal interest in reducing health care spending will they overcome the fear-based attacks.
P.S. If I endorsed using tax as a curse word, as libertarians are particularly fond of, I would frame cost controls as a payroll tax cut funded by eliminating medical waste, and thus Republicans who oppose cost controls as supporting a tax increase on the poor and middle class. But I don’t support anti-tax hysteria.