Goldman Sachs estimates that healthcare costs will rise more slowly for employers in the next few years and drive wage gains for workers as Obamacare transforms the market for medical services.
Health benefit costs rose 2.5 percent in the first quarter from a year earlier, compared with 2.7 percent wage growth, according to Labor Department statistics cited by the New York-based bank.
“This was the first time since the late 1990s that health benefit costs rose more slowly than wage costs,” Jan Hatzius, head economist Goldman Sachs, said in a May 11 report
obtained by Newsmax Finance. “It is likely to take several quarters, and probably a couple of years, for slowing benefit costs to translate into higher wage growth.”
The gradual roll-out of the Affordable Care Act, the healthcare law dubbed “Obamacare,” is shifting the way businesses pay workers, including with tax-free insurance. Since January, employers with 100 or more workers must provide a medical plan to 70 percent of their people. Small businesses will have to comply with similar mandates next year.
Goldman’s healthcare analysts estimate insurance premiums will rise 4 percent to 4.5 percent in the next few years, which would suppress wage growth. However, Obamacare may damp health costs with its various restrictions and incentives.
“The ‘Cadillac tax’ on high-cost health plans is likely to restrain health benefit cost growth,” Hatzius said in the report co-authored by Alec Phillips. The levy on those expensive plans “is likely to begin holding down average employer health costs even before it takes effect in 2018, as employers begin to adjust benefit packages.”
Another constraint on benefit costs will be the availability of government-sponsored coverage, according to Congressional Budget Office estimates
. Obamacare required states to set up healthcare marketplaces for people to buy coverage, or to use the federally provided HealthCare.gov
“Some employers may drop coverage in favor of newly available public sources,” Hatzius said. “CBO estimates that the greatest shift will occur in 2016, when employer-sponsored coverage declines by an estimated 2 percent to 3 percent.”
The reduced benefit costs may translate into a 0.15 percentage point annual increase in wages, according to Goldman estimates.
“The upshot is gradual upward pressure on wages, all other things being equal, with a bumpier ride in overall compensation growth as a result of health benefit trends,” Hatzius said.
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