Conventional wisdom and many economists are convinced that if employers cut health benefits to avoid paying the so-called Cadillac, to compensate they will increase cash compensation. A recent article in Forbes makes this case referencing several “studies.”
I can’t stand this any longer. I had to comment on that article and here is what I said.
We would be well served to stop listening to economists and start using common sense. I was a benefits executive in a S&P 500 company for nearly 50 years. Cutting health benefits does not result in increased wages now or ever. The whole reason for cutting benefits is to save money not transfer it to cash which means higher payroll taxes, possibly higher pension and 401k costs and all other costs associated with cash compensation. Common sense!
Think about this. If you were an employer who already thought health care premiums were too high an expense and then you face the prospects of paying a 40% tax on the value of some of those benefits what would you do? At a minimum you want to stay neutral in costs, but even in the absence of the 40% tax you are always looking for ways to cut health benefit costs.
Cash compensation is going to rise only when it must in order to attract the needed workforce. Based on the outcry about stagnant wages and in the face of pay increases barely exceeding current inflation rates during the last several years when employers have been trimming benefits, it’s hard to see how economic models conclude employers are going to trade benefit costs for higher pay. But what do I know, I don’t have a PhD.