Are Public Employee Health Care Costs Out of Control?

by James A. Bacon

Pension costs aren’t the only public-sector employee benefits that are out of control. A new report by Josh Barro with the Manhattan Institute, “Cadillac Coverage: The High Cost of Public Employee Health Benefits,” contends that public-sector health care costs are outpacing private-sector costs increases, too. This chart tells the story:

The obvious question is, “Why?” Barro gives four reasons: “(1) Public employees contribute only 15% of the cost of their premiums, versus 25% for private-sector employees; (2) public-employee plans offer more generous benefits, including lower co-pays and deductibles; (3) governments require shorter enrollment waiting periods for new employees; and (4) public employees opt in for employer-provided coverage at a higher rate: 84% versus 74% for the private sector.”

Unfortunately, Barro’s report does not provide a state-by-state breakdown, so we can’t see if the national pattern holds true in Virginia. But the report does highlight one area in which the McDonnell administration might find more cost savings in the state budget. Is anyone looking into this? If so, please let me know.

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6 responses to “Are Public Employee Health Care Costs Out of Control?”

  1. Groveton Avatar

    I think that using sweeping averages when comparing public sector compensation and benefits to private sector compensation and benefits is a mistake.

    A fair analysis needs some kind of stratification based on, at least, the educational attainment of the relevant class of employees. Ideally, it would also consider years of experience.

    I know a lot of engineers and computer science majors. I live in the Washington suburbs. Therefore, I know a lot of government employees too. I can’t think of a single engineer or computer science major who thinks that working for the government provides a better compensation package than working in private industry over the mid to long term. Some engineers and computer scientists work for the government in order to get leading edge work at places like the NSA and NASA. Some like the work – life balance which government positions often provide. None are in it for the money.

    My hypothesis is that the government’s education / experience curve is differently shaped from the private sector’s education / experience curve. I believe that te government’s curve is more highly skewed to more educated, more experienced employees.

    Given that, a comparison of averages is of limited value.

    As an example, I think it is very unlikely that a fair comparison of total compensation for computer scientists with 10 – 15 years of experience would demonstrate that the government employees were over-compensated relative to their private industry peers.

    The government also outsources a lot of low end jobs and has done so for decades. In high school, I worked for a landscaping company which had the contract to mow the grass at the Pentagon. My minimum wage job and I would be included in the “all workers average”. However, the government employees at the Pentagon would not include the average of those who mowed the lawn. I hypothesize that the government’s outsourcing of many low end support jobs helps to shape their employment curve differently to that of society overall.

    In fairness, those at the lower end of the educational attainment curve might do better working for the government than the private sector. However, the percentage of government employees at that lower end is being reduced (as a percentage of the total) through various “privatization” programs.

  2. Groveton, you are undoubtedly correct that the average skill level of average federal employees is higher than that of private-sector employees, and you are undoubtedly correct that the total compensation package is less skewed in favor of federal employees than commonly believed. OK, so what?

    First, the point of this report is that public-sector health care costs are rising faster than private-sector costs. You’re not disputing that, are you?

    Second, “public sector” encompasses more than the federal government. There are just as many employees, if not more, in state and local government. Indeed, I was thinking of state/local employees when I wrote this piece.

  3. Groveton Avatar

    “First, the point of this report is that public-sector health care costs are rising faster than private-sector costs. You’re not disputing that, are you?”.

    I don’t dispute it, I just don’t really care. Total compensation cost is what matters. Tell me about the totals rather than the pieces. If an employer offers lower salaries and bonuses and higher health care benefits, why do I care?

    Public sector is certainly more than federal. And, maybe, the education / experience curve in state and local looks more like private enterprise. I don’t know. But that’s the point. Until we start comparing apples to apples I am not sure whether there is a point or not.

    My overall hypothesis (and it is a hypothesis) is that public sector employees are paid less than comparable public sector employees when viewed through a proper education / experience lens. I also believe that public employees have more job security and a better work / life balance than private sector employees.

    But I don’t really know. Those are guesses. We need a like-for-like comparison to decided whether the public sector is overpaid, underpaid or about right versus the private sector. And that seems to be missing from all these analyses.

  4. Darrell Avatar

    Most of the Fed jobs I’ve seen get filled were 11 to 13 and they were all based on who ya know instead of what ya know. There are no 10 and below jobs out here in the hinterland beyond the beltway. That’s what contractors are for because they provide the skill set at a lower price.

  5. I agree with Groveton. It’s total compensation. This thing about going after different groups is not productive in my view.

    And from personal experience, I can tell you this. One of the most common Govt Health Care Plans is GEHA which, in my personal comparisons – typically pays LESS that DOD Contractors often get AND… from personal experience – that one of the more general health care plans that I’ve seen is offered to full time School employees which are paid for predominately in Va by the locality – substantially by property taxes for many.

    but the thing about “compensation” is this. The VALUE of health care plans is not taxed. Second, in the school system that I know, if you elected to not take their insurance (and instead the spouses) – you do not get the VALUE of the policy but a small percentage of it.

    This one aspect constitutes IMHO a pretty substantial loop-hole that should be addressed.

    If Health Care is compensation then it should be taxed as compensation.

    and if you elect not to take the plan – you should be entitled to the cash equivalent of it.

  6. Richard Avatar

    The solution proposed seems to be to limit coverage for public employees – the costs can be reduced if the public employees have to wait longer to be covered, if they have to pay more for it, and if benefits are reduced – in other words if fewer employees are covered and the coverage is not very good, the costs to the government will be reduced.

    If public employees don’t get coverage from their employment, where do they get it? Isn’t the cost of coverage just shifted somewhere else, like the emergency room, charity from hospitals, medicaid, etc. According to some, no one in America is denied coverage if they really need it – if so where is the savings if government merely shifts the payments for coverage from employee plans to charity, medicaid, or other companies? At least an employee plan provides preventive care, management of usage, and a little dignity.

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