Earnings Inequality: The Implications of the Rapidly Rising Cost of Employer-Provided Health Insurance

It is hard to overstate the influence that economic research on inequality has had on public and political discourse.

  • Analysts and policymakers have accepted as fact the propositions that income inequality has increased dramatically and that further redistributive policies must be undertaken to correct the situation.
  • These propositions, however, are based on research that focuses on dollar earnings and reported income rather than total compensation and ignores the impact of the rapidly rising cost of health care on reported income in the United States.
  • Redistributive policies may not address the root cause of the apparently increasing inequality, and would be counterproductive because of their negative implications for economic growth.

If policymakers are interested in addressing earnings inequality, the best course is to focus on policies that will control the growth of healthcare costs. Such policies should include the following:

  • Reduce how favorably healthcare spending and insurance are treated for tax purposes.
  • Strictly enforce antitrust law in the healthcare sector.
  • Encourage employers and government programs to provide insurance coverage options with more scope for workers’ sensitivity to costs.

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