Our decisions about whom and how to tax are decisions about which community needs we have the capacity to address and at what scale. Progressive taxes like personal, investment, and corporate income taxes generate more revenue from those who have the greatest ability to pay, and for whom the cost of losing the next dollar is small, relative to the last dollar of a family struggling to make rent and afford groceries. On the other hand, regressive revenue strategies like non-strategic tariffs, fees and fines, and an overreliance on sales taxes, especially when combined with cuts to social programs, heighten the sense that the system is unfair. Where progressive revenue strategies can bind a community together in mutual support and expand capacity to meet needs through good governance, regressive strategies erode people’s trust in the public sector.

H.R. 1 presents a vision of public finance that is unsustainable and erodes trust in government

Much of the federal tax code is in fact progressively structured, but for decades conservatives have weakened and attacked that progressivity. H.R. 1 (which the White House has referred to as the “One Big Beautiful Bill Act” or “OBBBA”) is the latest Republican-led effort toward breaking down trust in the public sector and social contract. H.R. 1 provides a suite of tax breaks to households across the income distribution; however, the wealthiest households and corporations see a far bigger tax cut from the package than the typical household does. In service to these tax breaks, the bill introduces devastating cuts to Medicaid, SNAP, and critical government agencies designed to help workers and their families thrive. Despite their size and the pain they will cause, these drastic cuts in the federal government’s capacity to serve and support working families are not enough to cover the costs of the corporate tax breaks; the Tax Policy Center estimates that H.R. 1 could increase the federal deficit by between $3.7 trillion and $5.1 trillion by 2034.

But unlike the federal government, states and localities cannot run budget deficits; their budgets must be balanced yearly. When major federal cuts happen, states and localities that rely on federal dollars to maintain critical services are forced to curtail and eliminate services, dive into emergency savings where they exist, or else shift to revenue generation strategies that often fall disproportionately on Black, brown, and poor households. The combination of directly hampering public services working people rely on while shifting more of the burden of raising revenue toward Black, brown, and poor workers and their families weakens worker power and exacerbates racial disparities.

H.R. 1 combines a shift toward regressive revenue strategies with massive tax breaks to corporations and the wealthiest households, in service to the Trump administration’s overarching goal: reasserting white, wealthy, and corporate privilege through tax cuts, deregulation, and the defunding of public institutions.

Regressive revenue strategies: Taking from the poor to give the rich even more breaks

The Trump administration has floated using tariffs as a replacement (either in full or part) for the federal income tax. This is not a new Republican strategy: Tariffs are a kind of consumption tax (on imported goods, along with the intermediate products businesses need to create goods and provide services domestically), and Republican-led state governments tend to rely more on consumption taxes1 (like sales taxes) and less on income taxes to increase revenue. Because poorer households spend a larger share of their income purchasing goods and services than the rich do, consumption taxes are inherently more regressive. The current federal income tax is progressively structured, in spite of the ways conservatives have attempted to weaken that progressivity over time. While tariffs can be a sensible part of a larger industrial policy strategy, governments place too large a burden on low- and moderate-income households when they try to use consumption taxes as a primary source of revenue. 

States and localities may turn to fines and fees to raise revenues in the absence of adequate federal support. These penalties are a poor substitute for progressive taxes. Fines and fees historically have only been able to cover a small fraction of state and local budget costs. And this is baked into the design: If the point of a fine or fee is to deter behavior, the best-case scenario (ending the behavior) would result in no revenue.

Even so, fines and fees cause significant economic pain for working-class families in the Black communities that are most affected by them. On an ethical level, a modern idiom applies: “If the penalty for a crime is a fine, that crime only exists for the poor.” The criminal justice system can trap poor folks in a cruel cycle of penalization for being unable to pay traffic tickets, court fees, and even their own surveillance through ankle monitors. Fines and fees increase the economic burden on those with the least ability to pay, all for a low return, making them a poor substitute for broad, progressive taxes.

Faux-progressive revenue strategies are ineffective and distract workers, their families, and policymakers from the need for real change

Ineffective tax gimmicks like temporary deductions on overtime and tipped income distract from the need for real reform around worker pay and scheduling. The point of requiring businesses to pay time-and-a-half for overtime is to discourage pushing workers to work beyond what we have collectively decided is a full and reasonable period of labor. Tipping is an outdated practice with racist roots, designed to shift the cost of maintaining a workforce onto consumers, rather than having employers properly compensate employees. Instead of cynically gesturing toward affordability through encouraging bad business practices, we should empower workers to fight for better wages and consistent scheduling.

Conservatives may also try to balance budgets by allowing progressive tax expenditures to expire (e.g., the recent expiration of the ACA premium tax credits or the expiration of the expanded child tax credits passed as pandemic relief). Temporary tax breaks themselves are not the most effective means of addressing structural economic issues; if health care or health insurance is persistently inaccessible to wide swaths of the population, we should seek to remedy that by making access universal—or, at the very least, making the credits that allowed greater access in the first place permanent. Allowing tax breaks implemented to address structural inequities to expire without an alternative solution to the problem being addressed is negligence. There are ways to balance budgets that do not involve reversing hard-won progress toward equity.

Progressive ways to generate revenue: Worker-centered tax policies can reduce inequality and expand the tax base

There are better ways of raising revenue that will support workers and their families, rebuild public trust in government, and get us the public goods and services we want and need. Since most Americans earn their living through selling their labor, it makes sense to keep some progressive tax on income to ensure people remain invested in the social contract. But with so much wealth and income concentrated amongst a few individuals, a necessary step is shifting more of the tax burden toward extremely high earners, wealth, and investment income. This will generate more revenue to improve public services and infrastructure, while tamping down on inequality. Adding tax brackets for the highest earners, adopting a legitimate tax on wealth holdings, and taxing the income made from investments at a rate closer to that of income from wages and salaries progressively raise revenues without increasing the burden on most U.S. households.

Proper enforcement of the current tax code would go a long way toward improving both our ability to raise funds and the public’s trust in public finance. The tax code is rife with opportunities for wealthy individuals and corporations to evade paying their fair share of taxes, allowing them to skirt holding up their end of the social contract. The IRS is also critically underfunded and recovering from recent staff reductions from the Trump administration. With enough resources to enforce existing tax law effectively, the IRS could go after the largest tax evaders and see returns that matter, as opposed to disproportionately targeting Black households without the funds to instigate a drawn-out legal battle over an audit.

Table 1

We need a tax code that supports states and localities and promotes full economic participation, not temporary tax gimmicks and handouts to the wealthiest

Taxpayers (literally) cannot afford to accept the conservative propaganda that all taxation is a burden on households. Taxes are one way of binding a democratic community together and allowing us to share in the costs of creating collective prosperity and community. Especially at the state and local levels, tax revenues are essential to providing the services people need to thrive. When federal funding gets pulled back and states and localities turn to regressive revenue strategies, it is working-class families who pay the price.

If we are going to rebuild a sense of trust in the social contract, we need to structure the tax code such that it becomes more progressive, tapping into a greater portion of the massive amounts of wealth and income that have pooled at the top. We can use that revenue to fund programs and new infrastructure that allow more people to fully participate in the economy:

• improved funding for public schooling, increasing teacher pay and quality of education
• a fully funded federal food assistance program, and/or adequate funding to states to support their own cash-assistance programs more comprehensive than Temporary Assistance for Needy Families (TANF)
• expanded access to and adequacy of Medicaid, or Medicare for All

Each of these initiatives could improve affordability and remove the need for state and local governments to pursue revenue regressive strategies that do more harm than good (like fines and fees). We won’t solve every structural inequality and eliminate all disparities through reforming the tax code; but building the resources and will to collect taxes in a progressive way are steps toward a fairer economy and a government that earns the public’s trust.

1. Consumption taxes have some potential uses. Carbon taxes, for example, tax the consumption of goods whose production intensively uses greenhouse gas-emitting inputs; if consumers look to avoid these goods by switching to others whose production involves fewer greenhouse gas emissions, we achieve an important social good.

What is happening?

At a time when working-class families are already facing a weakened job market, high prices, and general economic uncertainty due to erratic federal policy, Republicans in Congress seem committed to worsening their economic anxieties. The enhanced ACA premium tax credits, instituted with the American Rescue Plan (ARPA) and extended through the Inflation Reduction Act (IRA), were not extended through the Republican-led reconciliation budget. These credits have led to the largest increase in health insurance coverage since the ACA’s Medicaid expansion, and saved enrollees on average $705 annually in 2024.

Working-class families across the country will feel the implications of this policy failure as health insurance premiums rise (Groundwork Collaborative 2025). However, Black families, who face higher rates of poverty and uninsurance even under “normal” circumstances, are positioned to be hit especially hard by the loss of the enhanced subsidies. The loss of the premium tax credits is also set to economically drain the cities where lots of Black families live, especially those cities in states that neglected to expand health coverage through the ACA (Ortaliza 2025).

This analysis will focus on 10 major metro areas: Atlanta, Chicago, Dallas, Detroit, Houston, Los Angeles, Miami, New York, Philadelphia, and Washington, D.C.

Impact on Black families across 10 major metro areas

The Affordable Care Act, largely through its Medicaid expansion in 2014, set in motion a decade-long trend of falling rates of uninsurance throughout the country (Ortaliza, McGough, and Cox 2025; Hill et al. 2025). However, some states, particularly those throughout the South where the majority of Black Americans live and work, refused to expand Medicaid through the ACA (Childers 2023). Southern states’ refusal to expand access to Medicaid has meant lower coverage rates in those states and that a large share of Black Americans fall into what is known as the health insurance “coverage gap”; that is, they qualify for neither Medicaid nor traditional ACA subsidies (Lukens and Harker 2024). Even outside the coverage gap, many individuals who do qualify for ACA subsidies remain uninsured due to cost and enrollment difficulties.

The enhanced ACA premium tax credits do not eliminate racial disparities in health insurance coverage, nor do they close the coverage gap faced by Black Americans. However, the tax credits do make insurance more affordable, and thus practically more accessible, for those individuals who qualify. This increase in accessibility has led to the largest increase in Marketplace enrollment since the Medicaid expansion, with outsized increases among low-income individuals and in states that did not expand Medicaid. The loss of the tax credits would reverse hard-won progress made in reducing racial disparities in uninsurance rates (Buettgens et al. 2025).

Table 1

Figure A

Younger and healthier individuals are more likely to forgo coverage when faced with a sharp increase in the price of insurance compared with those who are less healthy and for whom coverage is less optional (Monaghan 2014). The expiration of the tax credits will therefore likely bring a knock-on increase in premiums as younger enrollees forgo coverage, since insurance premiums are cheaper for everyone when there is a large pool of healthier enrollees.

The remaining enrollees in the insurance pool of each metro area will also see premiums, and thus their health care spending, increase. Given that the states where larger shares of the Black population live are those set to be hit hardest by increased rates of uninsurance, we anticipate that the impact on consumption in metro areas in those states will be more severe.

Table 2

Access to health care in the United States is largely mediated by health insurance coverage. As a result, losing coverage in most cases means losing access to adequate and necessary care. Indeed, though access to health insurance does not guarantee affordability, uninsured adults are nearly twice as likely to report some difficulty in affording health care compared with those with insurance, with three-quarters either skipping or postponing needed care due to cost (Sparks et al. 2025).

Over time, a lack of access to adequate health care contributes to excess mortality. Black Americans are more likely to be uninsured, more likely to face difficulties in affording health care, and are thus more likely to postpone or skip care due to cost. To the extent that the expiration of the enhanced premium tax credits does lead to reduced health care access, it will likely also lead to excess mortality (Sommers, Long, and Baicker 2014).

Table 3

The loss of the enhanced premium tax credits will have knock-on economic costs, in addition to the public health costs resulting from excess mortality and increased health care costs for remaining marketplace enrollees. We assume a multiplier of 1.8 for health care spending, meaning that every lost dollar in premium tax credits reduces economic activity in a given metro area by $1.80 (estimates range from a multiplier of 1.5 to 2; see methodology section). Metro areas with large Black populations in states that lack Medicaid expansion will face significant losses in economic activity from this reduction in federal spending.

Table 4

Metro areas with large Black populations will also suffer significant productivity losses due to diminished worker health, assuming a productivity loss of $1,650 per newly uninsured Black worker. Finally, we assume employers in these metro areas will pay an additional $4,000 annually due to increased costs associated with each newly uninsured Black worker. Each of these impacts is felt most acutely in places where losing the enhanced premium tax credits is most costly—that is, those MSAs with the largest Black populations facing precarity in their coverage status.

Table 5

Why is this happening?

The Republican reconciliation bill passed last summer gives a clear distillation of conservative priorities: They prioritize the well-being of the wealthiest households and corporations over that of working-class families (Acemoglu et al. 2025). As such, the new budget contains several provisions that provide disproportionate tax relief to the wealthiest households, at the expense of social programs designed to benefit working- and middle-class families.

Allowing the premium tax credits to expire also repeats an unfortunate pattern associated with pandemic-era expansionary policy aimed at easing economic conditions for American families. Through several provisions in the American Rescue Plan Act (namely the expansion of the Child Tax Credit), the scourges of poverty, child poverty, and child hunger were all drastically reduced in 2021 (Gould 2022). When those expansionary provisions were allowed to expire in 2022, these measures snapped back to their previously higher levels, erasing the progress that was made (Cid-Martinez and Zipperer 2023; Moore and Maye 2023). The ARPA and IRA policies provide clear evidence that policy can be used to effectively reduce poverty, hunger, and uninsurance rates in ways that close racial disparities; it is a matter of prioritization, not practicality.

Why does this matter for public health?

The loss of the premium subsidies will almost certainly lead to a reduction in insurance rates, concentrated amongst those with the least ability to pay. Even for those with more income, having to face increasing health care costs amid a broader affordability crisis will also likely lead those families to go uninsured at the margin. This reduction in insurance will lead to a reduction in families’ access to adequate and timely care. Writ large, reduced access to preventative, adequate, and timely care leads to a less healthy population overall. Moreover, when more individuals and families access health care on an emergency rather than preventative basis, it puts greater strain on the entire health care system, contributing to overcrowding in emergency departments and longer wait times, and reducing the quality of care possible for a broader population (Sartini 2022).

Whether health care is a necessary or luxury good within an economy is partially shaped by the extent to which health care is publicly subsidized (Khan and Mahumud 2015). This is because the income elasticity of demand for health care changes with income. With public support, many more individuals and families can purchase health services as they become necessary than would otherwise. In the absence of public support, and at lower income levels, many view health care much more as an optional purchase when weighed against other pressing costs like shelter and food. Structural changes to the social provision of health care, like allowing subsidies to expire, lead to direct changes in consumption of health services by families, and much more so by working- and middle-class families.

Why does this matter for racial health disparities?

Even among the working class, Black families are more likely to be uninsured compared with white families. Black families are more likely to live in states that did not accept the ACA’s Medicaid expansion, and they are less likely to work for employers that provide insurance coverage. Black families will therefore be impacted more heavily by policies that reduce access to insurance at the margin. This matters because, again, Black families are more likely than their white counterparts to forgo or delay access to adequate health care for financial reasons. Losing access to the enhanced tax credits will result in increased health costs, loss of coverage, diminished health, and excess deaths, concentrated amongst the most disadvantaged. This is in keeping with the Trump administration’s stance that racial equity is not a policy goal worth pursuing.

What will this mean economically for workers and their families?

Families facing economic precarity—those for whom even a relatively small negative economic shock could lead to a crisis—stand to lose the most from the expiration of the ACA premium tax credits. More families are in a precarious financial position than live below the poverty line, and the ongoing affordability crisis being exacerbated by erratic and harmful economic policy decisions increases that number. Black and brown families are more likely to be in the position in which losing the subsidies would be impactful because they are more likely to lack financial assets, even after earning a college degree and escaping income poverty.

The cities where Black workers and families reside will also face a negative shock due to the loss of the subsidies, resulting from lost worker productivity and a drop in revenue, as those families shift more of their spending toward maintaining health insurance and less on other locally purchased consumer goods. Reduced economic activity from Black workers and families will have a broader impact on economic growth and activity throughout these cities.

What should we do about it?

The enhanced ACA premium tax credits are a prime example of a policy used to address the income side of the affordability crisis. The credits work as an income transfer from the federal government to families, making purchasing health insurance more affordable; enhancing the credits allowed more families to access timely and adequate health care. Allowing those enhanced credits to expire imposes a major cost on American families and their local economies, especially those in states where Medicaid was not expanded through the ACA.

But temporary tax credits are weak policy tools for addressing structural affordability crises. When the credits inevitably expire and those federal dollars are taken away, families will face the same issues of affordability; only now their consumption will have adjusted around having the credits. The new “increase” in the cost of health insurance means families must decide whether to risk going without coverage or reduce spending elsewhere— a tough choice with no good outcomes for local economies. 

A better policy strategy for addressing an affordability or accessibility problem with health insurance is to make structural changes to the program ( i.e., permanent changes that expand affordability and accessibility). In this case, extending the premium subsidies to become standard policy would be the strategy that creates the least harm for workers and their families.

Extending the tax credit subsidies would still leave millions of Americans and their families without access to health insurance, and thus facing diminished access to timely and affordable health care. The ACA, even in the expanded form adopted by many states throughout the country, is an imperfect system for achieving the goals of health equity. Moving our health care system in the direction of single-payer health insurance in which access to affordable and high-quality health care is given as a right not contingent on wealth, income, or employment is the strategy most consistent with reducing economic and health disparities across race and improving our overall economic and public health.

Allowing the ACA premium tax credits to expire would make it harder for American families to access health care, worsen an ongoing affordability crisis, and have a knock-on negative impact on local economies. Black workers and their families would feel these shocks most acutely because even under normal circumstances, Black families are less likely to live in states with expanded access to Medicaid, less likely to work in jobs that provide access to health insurance, and more likely to forgo or delay health care due to financial challenges.

The Trump administration has continually shown its disdain for the pursuit of equity as a policy goal through dismantling institutions committed to reducing disparities, rescinding executive orders and federal commitments to set higher standards for equity, and failing to maintain policies that brought us closer to those goals. The pursuit of equity in this moment requires us to hold fast to the progress we have made thus far, both so that we limit the suffering of as many American workers and families as possible, and so that when we do have the opportunity to build toward further progress, those families will be in the best position to help us do so.

Methodology

This analysis uses publicly available data and fixed parameter assumptions alongside author calculations to produce annual, metro-level estimates for Black coverage losses and related economic impacts for 10 metropolitan areas. Demographic and labor market statistics are derived from 2023 IPUMS American Community Survey microdata and aggregated from the county to the metropolitan level using Census Core-Based Statistical Area definitions (Ruggles et al. 2025). Coverage data is derived from the 2024 CMS OEP county-level public use file for states using the federally facilitated Marketplace (CMS 2025). For states operating state-based exchanges in which county-level Marketplace data are unavailable, enrollment and subsidy totals are derived from Kaiser Family Foundation (KFF) state-level estimates and allocated to metropolitan areas based on Marketplace-eligible population shares calculated from ACS microdata (KFF 2025). Projected coverage losses are derived from Commonwealth Fund estimates of coverage loss at the state level and allocated to metropolitan areas based on each metro’s share of state Marketplace enrollment (Ku et al. 2025). Parameter assumptions for economic activity and public health multipliers are drawn from literature listed in the references, including estimates of lost economic activity from reduced health care spending, productivity losses and employer costs associated with uninsurance, and preventable mortality linked to coverage loss (Chernew 2016; Ortaliza 2025; Sommers, Long, and Baicker 2014; EBRI 2000; O’Brien 2003).

References

Acemoglu, Daron, Peter Diamond, Oliver Hart, Simon Johnson, Paul Krugman, and Joseph Stiglitz. 2025. “An Open Letter From Six Nobel Laureate Economists: The Upside-Down Priorities of the House Budget.” Economic Policy Institute, June 2, 2025. 

Buettgens, Matthew, Michael Simpson, Jason Levitis, Fernando Hernandez-Lepe, and Jessica Banthin. 2025. 4.8 Million People Will Lose Coverage in 2026 If Enhanced Premium Tax Credits Expire. Urban Institute and the Commonwealth Fund, September 2025.

Centers for Medicare and Medicaid Services (CMS). 2025. 2024 “OEP County-Level Public Use File” [data set], 2024 Marketplace Open Enrollment Period Public Use Files. Last modified March 3, 2025. 

Chernew, Michael E. 2016. “The Economics of Medicaid Expansion” (blog post). Health Affairs Forefront, March 21, 2016.

Childers, Chandra. 2023. Rooted in Racism and Economic Exploitation: The Failed Southern Economic Development Model. Economic Policy Institute, October 11, 2023. 

Cid-Martinez, Ismael, and Ben Zipperer. 2023. “The End of Key U.S. Public Assistance Measures Pushed Millions of People into Poverty in 2022.” Working Economics Blog (Economic Policy Institute), September 12, 2023.

Employee Benefit Research Institute (EBRI). 2000. The Economic Costs of the Uninsured: Implications for Business and Government. EBRI Policy Forum held in Washington, D.C., May 3, 2000.

Gould, Elise. 2022. “Child Tax Credit Expansions Were Instrumental in Reducing Poverty Rates to Historic Lows in 2021.” Working Economics Blog (Economic Policy Institute), September 22, 2022.

Groundwork Collaborative. 2025. “Another Trump Price Hike for Working Class Americans as Health Insurance Premiums Set to Spike Up to 600% This Fall.” Innovative Research (blog post), October 1, 2025.

Hill, Latoya, Nambi Ndugga, Samantha Artiga, and Anthony Damico. 2025. Health Coverage by Race and Ethnicity, 2010–2023. KFF, February 2025.

KFF. 2025. “Marketplace Enrollment, 2014–2025” (web page). Accessed January 16, 2026.

Khan, Jahangir A.M., and Rashidul Alam Mahumud. 2015. “Is Healthcare a ‘Necessity’ or ‘Luxury’? An Empirical Evidence From Public and Private Sector Analyses of South-East Asian Countries?” Health Economics Review 5, no. 3. https://doi.org/10.1186/s13561-014-0038-y.

Ku, Leighton, Taylor Gorak, Kendal Orgera, Kristine Namhee Kwon, Maddie Krips, and Joseph J. Cordes. 2025. Expiring ACA Premium Tax Credits Could Lead to Nearly 340,000 Jobs Lost Across the U.S. in 2026. The Commonwealth Fund (issue brief), October 16, 2025.

Lukens, Gideon, and Laura Harker. 2024. Closing Medicaid Coverage Gap Would Help Diverse Groups and Reduce Inequities. Center on Budget and Policy Priorities, July 2024.

Monaghan, Maureen. 2014. “The Affordable Care Act and Implications for Young Adult Health.” Translational Behavioral Medicine 2014, no. 2 (June): 170–174. https://doi.org/10.1007/s13142-013-0245-9.

Moore, Kyle K., and Adewale A. Maye. 2023. “Despite a Strong Labor Market, the Choice to Allow Pandemic-Era Public Assistance Programs to Expire Increased Poverty Across All Racial Groups in 2022.” Working Economics Blog (Economic Policy Institute), September 18, 2023.

O’Brien, Ellen. 2003. “Employers’ Benefits from Workers’ Health Insurance.” Milbank Quarterly 81, no. 1: 5–43. doi: 10.1111/1468-0009.00037. 

Ortaliza, Jared. 2025. “An Additional 8.2 Million People Are Expected to Be Uninsured from Changes in the ACA Marketplaces.” Quick Takes (KFF), June 10, 2025.

Ortaliza, Jared, Matt McGough, and Cynthia Cox. 2025. The Affordable Care Act 101. KFF, October 2025.

Ruggles, Steven, Sarah Flood, Matthew Sobek, Daniel Backman, Grace Cooper, Julia A. Rivera Drew, Stephanie Richards, Renae Rodgers, Jonathan Schroeder, and Kari C.W. Williams. 2025. IPUMS USA: Version 16.0 . Minneapolis, M.N.: IPUMS, 2025. https://doi.org/10.18128/D010.V16.0.

Sartini, Marina, Alessio Carbone, Alice Demartini, Luana Giribone, Martino Oliva, Anna Maria Spagnolo, Paolo Cremonesi, Francesco Canale, and Maria Luisa Cristina. “Overcrowding in Emergency Department: Causes, Consequences, and Solutions—A Narrative Review.” Healthcare (Basel) 10, no. 9 (Aug 25, 2022): 1625. doi: 10.3390/healthcare10091625. PMID: 36141237; PMCID: PMC9498666.

Sommers, Benjamin D., Sharon K. Long, and Katherine Baicker. 2014. “Changes in Mortality After Massachusetts Health Care Reform: A Quasi-Experimental Study.” Annals of Internal Medicine 106, no. 9: 585–593. https://doi.org/10.7326/M13-2275.

Sparks, Grace, Lunna Lopes, Alex Montero, Marley Presiado, and Liz Hamel. 2025. Americans’ Challenges with Health Care Costs. KFF, December 2025.

This analysis was produced in partnership with Groundwork Collaborative.

More than 170,000 Black adults in 10 major metro areas would lose health care coverage in 2026 if the ACA credits expire, with the largest losses in Atlanta, Houston, Dallas, and Miami. Losing insurance wipes away a basic source of security for working families and reverses gains made under the ACA, which disproportionately reduced uninsured rates for Black adults​​—narrowing longstanding racial coverage gaps. 

Our analysis shows that coverage loss is only the first shock. Families who lose insurance and families who remain covered both face significant new burdens, and the costs are substantial across the 10 metropolitan areas.

• Allowing the ACA credits to expire would lead to more than 200 preventable Black deaths each year. These deaths stem directly from the loss of affordable coverage and reduced access to timely care. 
• Black families would pay $740 million more in annual premium costs. Black families who are able to keep their health insurance would be squeezed by higher health care costs, further straining already tight household budgets.
• Local economies in major metros with large Black populations would lose more than $1.9 billion each year. Atlanta, Houston, and Dallas metros would lose the most economic activity as federal subsidies disappear and household spending contracts because families must redirect more of their income toward higher premiums and away from spending on local goods and services. 

Table 1

Allowing the ACA premium tax credits to expire would make it harder for U.S. families to access health care, worsen an ongoing affordability crisis, and negatively impact local economies. These shocks would be felt acutely by Black workers and their families because they reflect longstanding structural inequities that influence who has access to affordable health care. Black workers are less likely to hold jobs that provide employer-provided health insurance, more likely to live in states that did not expand Medicaid, and more likely to skip or delay medical care due to costs. Moreover, ending the tax credits would reduce economic activity and lower productivity in the cities where Black families live.

The pursuit of equity in this moment requires us to hold fast to the gains we have made thus far, both to limit the suffering of as many U.S. families as possible and to help us build toward further progress. Acting to extend the ACA premium tax credits until such a time that health costs can be significantly reduced is smart, responsible, and race-conscious economic and public health policy.

Note

1. Pre-Trump economic conditions were examined in these 10 metro areas in EPI’s “A tale of 10 cities” report, which discusses various threats imposed by the Trump administration’s historic rollback of federal, civil, and workers’ rights protections. The underlying methodology combines Census microdata, federal Marketplace enrollment data, and state-level projections of coverage loss. The forthcoming report will provide complete technical details.

House Republicans wanted to find a way to defray the cost of the tax cuts they passed for the richest households in the country. They chose to slash programs helping some of the most vulnerable families—including Medicaid and subsidies that let people buy health insurance through the Affordable Care Act (ACA). This direct transfer of income from vulnerable families to the richest can be summarized in a striking symmetry: If the bill becomes law, the annual cuts to Medicaid would average over $70 billion in coming years—the same amount millionaires and billionaires would gain in tax cuts each year.

These health care spending cuts would lead directly to millions of people losing health insurance. A widely cited Congressional Budget Office (CBO) estimate of 13.7 million people losing coverage was preliminary, and the CBO noted that more-precise estimates to come would “somewhat further increase the estimated number of people without health insurance.” More recently, the Center on Budget and Policy Priorities estimated coverage losses of at least 15 million.

The cuts to Medicaid would also damage local economies and workers throughout the United States. Even during times when the national unemployment rate is low, tens of millions live in weaker local economies with higher county unemployment rates and far less ability to weather sharp spending shocks like a Medicaid cutback would provide. In fact, a disproportionate share of the House bill’s Medicaid cuts would almost surely fall exactly on these weaker local economies. We estimate that roughly 27 million workers are in these weaker local economies, and that Medicaid cuts could depress local spending enough to force the loss of 850,000 jobs.

Download the Unemployment rates and Medicaid coverage by US county spreadsheet

Republicans believe their strongest argument in favor of the health insurance cuts in this grotesquely unequal bill is that they’re simply demanding that able-bodied adults receiving Medicaid must work. Every part of this argument falls apart once the details of this bill’s cuts and their ripple effects are examined. Concretely:

• The bill’s cuts are broader and more expansive than just the work requirements for able-bodied adults.
• It is decisions made by employers and policymakers, not individual workers, that are most responsible for any particular worker being able to rack up enough work in a given month to satisfy the work requirements in the House bill.
• The more workers that are covered by public insurance programs like Medicaid, the better it is for workers’ wages—cutting Medicaid hence will harm wages going forward.
• Taking health insurance away from 15 million people will impose costs on other groups—insurance premiums for other workers could rise and state and local government contributions for uncompensated care will increase.
• Health care providers and hospitals will be forced to downsize and close, particularly in rural areas. This will not just reduce residents’ access to care—it will cause huge disruptions to local economies.

House budget cuts are not just work requirements

The House budget would cut roughly $715 billion from Medicaid over the next decade, according to preliminary estimates. The House bill also fails to extend premium tax credits that made insurance more affordable through the Affordable Care Act, constituting an additional $335 billion cut over the next decade. Adding these health insurance cuts together implies more than $1 trillion in cuts over the next 10 years. The work requirement provisions in the House bill are scored to yield $280 billion in savings. In short, the House bill’s cuts are far more expansive than just the work requirements.

Policymakers and employers, not workers, decide if work is available for all who want it

Work requirements are often defended as providing an incentive to work. But the U.S. provides essentially no cash welfare at all to non-workers—the incentive to work is that it is the only way for the non-wealthy to live free of grinding poverty. Policy failures and the whims of employers—not insufficient incentives—are what stop people from engaging in steady work.

Only policymakers—like the Federal Reserve, Congress, and the president—have the power to ensure that unemployment remains low and jobs remain plentiful in the U.S. economy. When they do this, hours of work in the poorest families rise sharply—proving that it is availability of jobs, not individual incentives, that determine how much work these families can secure.

But even when the national unemployment rate is low, the low-wage labor market—the one most relevant to those facing Medicaid’s work requirements—sees huge amounts of churn. About 20% of workers in the bottom quarter of the overall wage distribution will see a spell of joblessness in the next three months.

Another way to illustrate this churn: About 2 million workers are laid off in the U.S. economy every single month. If these workers do not near-miraculously find new jobs instantly, they will risk being ineligible for Medicaid while having no access to employer-based coverage either. Again, it is failures by policymakers and the decisions of employers that create an unstable and insecure low-wage labor market that are the real barriers to steady work, not individual incentives.

More public health insurance coverage—like Medicaid—is good for workers

U.S. workers would benefit greatly if health coverage was delinked from specific employers and instead provided by the public sector. A pro-worker policy would be expanding the coverage provided by public plans like Medicaid, not cutting it.

Most fundamentally, the labor market is unequal—employers clearly have power advantages relative to most workers. Aside from collective bargaining, the main way workers should in theory be able to wring better conditions and wages from employers is by threatening to quit and move to other jobs. But this threat is not credible if overall unemployment is high (which it is far too often in the U.S.), and it is often not credible due to all sorts of frictions in the job market keeping workers from seamlessly changing jobs.

These frictions can stem from all sorts of mundane sources like low information about other opportunities, too few employers in their field, or insufficient child care resources near employers. But because access to health insurance for non-elderly people in the U.S. runs mostly through employers, workers’ need to assess what any new employer’s health insurance policies might mean for their well-being is a huge friction. If more U.S. workers relied on public insurance like Medicaid, this reduced friction could lead to a better-functioning labor market and allow workers to wield greater power in securing wage increases from employers.

Further, public insurance programs like Medicaid and Medicare have historically done a much better job in containing costs than employer-based plans. Every $1 saved in health care costs is $1 that could instead go into workers’ paychecks. Getting more workers covered by public plans that are better at saving these dollars would be good for wage growth.

Finally, employer-based health insurance is not free—it is paid for in the long run by extraordinarily large subsidies from the federal government and workers foregoing wages in lieu of health insurance coverage. The public subsidies stem from workers not having to pay taxes on the compensation they receive in the form of employer contributions to health insurance premiums. The value of this public subsidy is more than half as large as federal Medicaid spending. This subsidy for employer-provided health insurance is greater for more highly paid workers, and given the higher cost of employer-based insurance, can easily be greater on a per-worker basis than the average cost of Medicaid.

The wages foregone in lieu of employer contributions to health insurance premiums are also large. In 2023, employers paid over $900 billion in insurance premiums, an amount that would likely have gone to wages if employers were not the main payers of health insurance in the United States. Further, because the cost of any individual health insurance policy is a fixed amount, employer-provided health insurance is essentially financed by a flat tax on workers, which means it takes a much higher share of wages from lower-paid workers. It has been estimated that this implicit flat tax system costs non-college workers roughly $1,700 per year relative to a system of public insurance (like Medicaid) financed by proportional taxes.

All in all, workers should want more people in the labor force able to be covered by public plans, not fewer. Unraveling the too-small public coverage we already have will just see increasing downward wage pressures from rising health care costs and frictions in the labor market.

Removing health insurance from 15 million people could raise health care costs for all

Taking health insurance coverage away from 15 million people will obviously impose the greatest harm on the newly uninsured group. They will face greater financial stress and likely forego needed health care. Their health and living standards will suffer.

But as much as House Republicans want to defect from the social contract regarding health coverage, it remains the case that there is widespread agreement among Americans—enshrined in law and policy—that simply withholding needed health care from sick and injured people who cannot pay for it should not be done. So, if somebody with diabetes is kicked off Medicaid and can no longer access their insulin and falls into an acute medical crisis, they will be cared for—too late to salvage their full health and at much greater expense—in emergency rooms. All of this will greatly exacerbate a significant problem with emergency department overcrowding, boarding, and wait times. And it should be obvious that this irrational deferral of care until more damage has been done is not helping this person become a more productive potential worker.

All of this means that the rise of uninsurance stemming from the House bill will cause a flood of uncompensated care—health care delivered in places like emergency rooms that the patient themselves cannot pay for because they’re uninsured. State and local governments will foot the bill for much of this uncompensated care. Some of it might be passed on to higher prices generally for health care, pushing up premium costs and out-of-pocket costs for even those who remain insured.

It is worth noting the main target of the House bill’s Medicaid cuts are the Medicaid expansions that were passed as part of the Affordable Care Act—and these Medicaid expansions made a huge dent in the problem of uncompensated care that was endemic before the ACA’s passage. Uncompensated care costs essentially fell by a third due to the ACA’s passage, almost entirely because of its Medicaid expansions.

Health care is a key engine of local economies that will be damaged by these cuts

The House bill would lead to health care providers losing $770 billion in payments over the next decade. Because the ACA’s Medicaid expansion was so crucial to keeping rural hospitals afloat in the past decade, a sharp rollback would inevitably force shutdowns and cutbacks at medical providers and hospitals, particularly in these rural regions.

This would be a disaster not only for access to health care but also for local economies. Health care is by far the largest employer of any sector in the United States, employing 18 million workers. It’s also a key source of good jobs—the unionization rate in the hospital sector is twice as high as the rest of the private sector.

In 2009, the Obama administration used increased federal payments to Medicaid as a key strategy in their American Recovery and Reinvestment Act, a plan to boost employment and end the Great Recession. This worked spectacularly well—the gold standard study examining this policy found that that each $1 billion in additional spending to Medicaid resulted in 38,000 jobs gained, with more than 75% of the jobs being gained outside of the health sector as Medicaid coverage boosted disposable incomes and hence consumption spending across all sectors. Adjusting for inflation, this would imply that each $1 billion spent on Medicaid in 2025 would see 25,000 jobs gained. This result means that Medicaid cuts will impose a sharp anti-stimulus to local economies. Jobs in health care will be cut, and three times as many jobs outside of health care will be cut.

It is true that overall macroeconomic conditions are different now than in 2009—a year that saw the steepest recession to that point since the Great Depression of the 1930s. It is possible that some local economies today might be strong enough to weather a Medicaid spending shock. But overall economic strength is not guaranteed to hold in coming years when these cuts will take effect. Several economic forecasters are predicting a high chance of recession over this time.

Further, even when the national economy is strong, there are still hundreds of counties with weaker economies. For example, the national unemployment rate was 3.6% in 2023. A rough rule of thumb holds that an unemployment rate that is 0.5% above the minimum rate it hit over the past year indicates a weak economy likely to enter recession. If we take this rule about unemployment rates over time and apply it to unemployment rates across space, we see that about a quarter of counties had unemployment rates 0.5% above the national average, with 27 million workers living in these counties. Medicaid cuts hitting these places—already economically weak and considerably more recession-prone than the nation as a whole—will absolutely trigger the strong anti-stimulus effects described above.

Worse, there is a strong positive relationship between higher-than-average unemployment rates and the share of a county’s population that is covered by Medicaid—as shown below in Figure A. In other words, the Medicaid cuts will destroy health care jobs and cause other spillover job loss in exactly those areas that can weather this the least.

Figure A

Let’s assume that the research showing 25,000 jobs are lost for every $1 billion cut in Medicaid spending held today only in those counties with unemployment rates at least 0.5 percentage points higher than the national average. Assume as well that Medicaid cuts will fall in proportion to a county’s share of adults ages 19–64 who are enrolled. This implies that roughly half of the spending cuts (48.5%) will fall on counties whose local economies are not strong enough to weather them without seeing job losses in response. Multiplying the size of these cuts in billions of dollars by 25,000 jobs implies that 850,000 jobs in weaker local economies could be lost—a number that would increase the number of unemployed in these counties by upwards of 40%.

Conclusion

The damage from the House bill’s cruel and logic-free cuts to Medicaid and other health services will fall mostly heavily on the 15 million who will lose health insurance. But the damage won’t be contained there—nearly everybody else in the U.S. will feel the harms of less efficient health care and labor markets, higher needs to pay for uncompensated care, closures and cutbacks in health care providers and hospitals, and even damage to entire local economies that are reliant on this health spending. For the very rich who will see enormous tax cuts from this bill, it all might end up being a good deal. For everybody else, it will not.

The latest attack is another court case that made its way to the Supreme Court (California v. Texas)—which could have a ruling as soon as Thursday. Legal merits of the case aside (there were essentially none), the economic fallout of the case if it is decided in the plaintiffs’ favor would be profound, as the requested remedy is the abolition of the entire ACA.

The ACA was in some ways hugely complicated, but can be boiled down to five major undertakings:

• Strengthening employer-provided health insurance with mandates like no lifetime caps on benefits paid and an allowance for adults up to the age of 26 to be covered on parents’ plans;
• Providing needed regulation for the “nongroup” health insurance market (the market for people who can’t get insurance through their employer or through existing government programs);
• Providing subsidies to make purchasing nongroup plans more affordable for many;
• Paying for states to expand their Medicaid programs significantly; and
• Raising taxes on high incomes to pay for its spending provisions.

Republicans are most intent on the ACA’s taxes being rolled back if the Supreme Court rules in their favor. Despite their new pose as working-class defenders, they work hardest for tax cuts for rich people and corporations.

But for now, we should remember the mammoth benefits provided by the ACA through its spending and regulatory provisions. It did not solve all of the problems in the U.S. health care system, and it was not as transformational a change as a move toward single-payer health care would be, but it was easily the most important expansion of the (still too threadbare) U.S. welfare state since the 1960s.

Some key benefits stemming from it are:

Strengthening employer-provided health insurance

• Almost three million adults ages 19–25 gained coverage through the ACA provision allowing them to stay on their parents’ employer-provided health plans.
• By 2020, nearly $8 billion had been rebated to beneficiaries of employer-provided health plans because these plans had not spent enough on actual reimbursement of health costs under new customer protections included in the ACA.
• 105 million Americans covered by employer-sponsored plans had lifetime limits removed on what insurers would pay for medical costs.

Nongroup coverage regulations

• Perhaps most famously, the ACA ended the practice of insurers denying coverage (or charge exorbitant premiums) on the nongroup market to those suffering from preexisting health conditions. The Kaiser Family Foundation has estimated that 27% of nonelderly Americans have preexisting conditions that would have made them eligible for denial of coverage before the ACA.
• Before the ACA, insurers in the nongroup market commonly exercised “rescissions” of coverage—unilaterally declaring coverage canceled (often retroactively) when beneficiaries became sick. These rescissions probably best demonstrate how corrupted and in need of reform the nongroup market was before the ACA. The ACA has made such rescissions illegal.
• The ACA also made insurers offer more protective plans in the nongroup market by forcing them to offer plans with lower out-of-pocket costs like deductibles, co-pays, and co-insurance. Nearly half of plans on the nongroup market before the ACA would not have been allowed on the exchanges because they did not offer enough protection against out-of-pocket costs.

Subsidies for nongroup coverage

• Currently, about 12 million people obtain health insurance coverage through the marketplace exchanges set up by the ACA, and 90% receive subsidies to make the coverage more affordable.
• In 2020, these subsidies totaled just under $60 billion, and by definition they are targeted at low- to moderate-income households.

Medicaid expansions

• The expansions of public health insurance coverage through Medicaid were the most transformative part of the ACA. As of 2021, the ACA Medicaid expansions provided health insurance coverage for 14 million Americans and provided an effective income transfer of over $90 billion to households, with nearly all of this transfer going to families below 150% of the federal poverty line.
• These expansions were highly effective in equalizing racial disparities in access to health care, even as states that refused to accept the expansions damaged working families across the board. Between 2013 (before the ACA Medicaid expansions went into effect) and 2018 in expansion states, the share of the white population that was uninsured dropped by 51%, while for the Black population it fell by 53%. In nonexpansion states, the drops were substantially lower—27.8% for the white population and 31.5% for the Black population. By 2018, the Black population in expansion states had a lower rate of uninsurance than the white population in nonexpansion states.
• Among Hispanics, the share of the population that was uninsured fell by just two percentage points in states that did not expand Medicaid, but fell by 27 percentage points in states that did.

There is plenty left to be done to make the U.S. health system efficient and fair. But the ACA was a large step forward, and the continued attacks on it by a Republican Party intent on clawing back the high-income taxes used to fund it show clearly just how uncommitted they are to helping working-class Americans.

In this post, we highlight—in very broad strokes—what is needed to build an economy that generates faster, more sustainable, and more equitably distributed growth. We then identify where the administration has made progress in the first 100 days and where more forceful action is needed.

Building an economy that works for everyone requires the following:

• Pursuing a “go-for-growth” approach to macroeconomics that aims for labor markets where jobs are plentiful and employers have to work hard (including offering higher wages) to attract workers, so-called “high-pressure” labor markets.
• Crafting and enforcing fairer rules for markets, particularly through labor market institutions and standards that provide workers a more level playing field when bargaining with employers for better pay and working conditions.
• Constructing deeper and more protective social insurance systems that use a larger public role in providing unemployment benefits, health coverage, and retirement income security— including long-term care for older adults and people with disabilities.
• Undertaking ambitious public investments in both people and physical capital, including physical infrastructure, early child care and education, higher education, and green investments.
• Reforming taxes in a way that helps finance the needed fiscal spending in this program, curbs growing inequality, and discourages the economic “bads” of greenhouse gas emissions and financial speculation.

Below, we expand on these points and assess the Biden-Harris administration’s progress in the first 100 days. The brief summary is:

• A comprehensive $1.9 trillion relief and recovery bill—the American Rescue Plan (ARP)—has passed that will secure a go-for-growth approach to macroeconomics for most of its first term—a very large accomplishment.
• One proposed plan—the American Jobs Plan (AJP)—calls for investments in traditional infrastructure, green investments, and long-term care—all financed with progressive taxes. But this plan has not yet passed, and the labor standards included in it have no real enforceable mechanism yet.
• Another plan just released today—the American Families Plan (AFP)—proposes large investments in children and higher education and is financed by progressive taxes on capital incomes accruing to the richest households.
• Decent first steps in improving administration of unemployment insurance (UI) and affordability of health care have been made in the ARP and AFP, but concrete plans for permanently deepening crucial social insurance programs are yet to be done.
• Tough-minded but realistic strategies to pass transformative policies like the Protecting the Right to Organize (PRO) Act and Raise the Wage (RTW) Act remain to be formulated.

“Go-for-growth” macroeconomics

The first 100 days of the Biden-Harris administration deserve very high marks on this front. In the face of loud voices declaring that their plans for macroeconomic rescue would lead to economic “overheating” (inflation and interest rate spikes), the administration held firm and secured passage of the American Rescue Plan (ARP). If measures to suppress the coronavirus work and it is safe to return much closer to economic normality in coming months, the ARP will drive rapid and large reductions in unemployment. This is in stark contrast with the too-small efforts at fiscal rescue following the Great Recession of 2008.

A go-for-growth approach to macroeconomics can never be secured forever with one piece of legislation—it requires consistent monitoring of macroeconomic trends and requires an evidence-based Federal Reserve to buy into it. But the ARP is a great start, and the Fed has so far been admirably supportive. The benefits of high-pressure labor markets are large, and they accrue disproportionately to workers facing historic discrimination in labor markets, making them a powerful tool for fostering both economic and racial equality. This solid macroeconomic approach is a superb first achievement for the administration.

Crafting and enforcing fairer markets—especially through labor standards and institutions

The two most important changes to labor standards and institutions currently being proposed are the Protecting the Right to Organize (PRO) Act and the Raise the Wage Act (RTW). The PRO Act is a comprehensive reform of labor law which would significantly improve the prospects of U.S. workers trying to organize unions in the face of growing employer hostility and abusive union-busting tactics. The RTW Act would raise the federal minimum wage to $15 per hour by 2025 and index it thereafter to growth in typical workers’ wages. Combined, these two pieces of legislation would rebuild two of the most important bulwarks to wage growth for the large majority of U.S. workers. Further, collective bargaining and large expansions of the federal minimum wage have in the past been two of the most powerful measures we’ve ever seen for fostering greater equality by both race and income class.

The Biden administration has admirably expressed support for both measures. The fact that the Biden administration has issued an executive order establishing a White House Task Force on Worker Organizing and Empowerment is particularly welcome, as is their Statement of Administration Policy (SAP) in support of the PRO Act. (In contrast, the Obama administration never issued a SAP in support of the labor law reform effort made in its first term.)

But the U.S. Senate remains the principal roadblock to both the PRO Act and the RTW Act. A serious strategy is needed to move these vital pieces of legislation past this roadblock, and the White House is the most obvious place for such a strategy to originate. In particular, the Senate filibuster imposing an implicit 60-vote threshold on most legislation means that a significant modification of Senate norms is likely needed to pass these bills. Either filibuster reform is needed, or the budget reconciliation process (which provides an end run around the filibuster for budget-related legislation) needs to be stretched further than it has been in the past, even in the face of unfriendly opinions from the Senate parliamentarian.

Much of the progressive agenda can pass through budget reconciliation if 50 votes can be found in the Senate. Under current Senate norms (and that’s all they are—norms—which have been broken repeatedly by Republican-run Senates), the PRO and RTW Acts could not be passed with 50 votes. If the current Biden administration ends with no progress on these fronts, the upward march of inequality in the U.S. is near guaranteed to continue. Rhetorical support from the administration is a good first start on these vital bills—but more is needed, and soon.

While labor standards that apply economywide, like the PRO and RTW Acts, are the really transformational changes to the economy’s rules, there are smaller measures in the labor standards space that could still help groups of workers in nontrivial ways that remain to be secured. For example, in a following section, we discuss the administration’s proposals for ambitious public investments which, if enacted, would be important steps down a path toward broadly shared prosperity. One key way to make these investments even more impactful in supporting high-quality jobs would be to make sure that the labor standards associated with them are strong. Much like their rhetorical support of the PRO and RTW Acts, the Biden administration has called for strong project-specific labor standards to accompany the investments in the American Jobs Plan (AJP), but a legislative and regulatory strategy to ensure they do is yet to come forth and is crucial.

The administration also yesterday issued an executive order requiring federal contractors to pay a minimum wage of $15 per hour. This is a very welcome step and will increase the earnings of up to 390,000 low-wage workers on federal contracts. We encourage the administration to go further to help ensure that the estimated two million total jobs held by federal contract workers are good jobs. This would include steps like ending practices that allow low-road contractors to win bids that are so low they are inconsistent with decent pay and working conditions, and banning federal government contractors from requiring contract workers to sign forced arbitration and class action waivers.

More generous and accessible social insurance

During the COVID-19 pandemic, huge but temporary changes were made to the U.S. unemployment insurance (UI) system to make it more protective and generous to jobless workers. But decades of disinvestment in state-run UI systems meant that this aid was fraught with administrative problems and took too long to reach millions. Worse, the more generous aid “turned off” for months due to congressional inaction. While the ARP extended the more generous pandemic UI provisions through September of this year, no structural reform has happened yet. Going forward, a comprehensive reform of UI that makes it more generous, more automatically responsive to economic conditions, and easier to access should be a key priority. The American Family Plan (AFP) provides money for states to invest in their delivery systems and calls for more fundamental reform, but it does not contain policy specifics, so more work on this front is needed.

The job losses spurred by the pandemic also cost millions access to health insurance they received through their employer-based plans. Moving to a U.S. health system with a much larger public role is needed to provide real economic security to jobless Americans. A larger public role would also greatly increase economic flexibility and opportunities for workers and for aspiring business owners. The ARP included a welcome and large increase in subsidies provided for health insurance purchased in the marketplace exchanges created by the Affordable Care Act (ACA), and the proposed American Family Plan (AFP) would make more generous subsidies permanent. Encouraging Medicaid expansion into states that have not yet adopted the ACA provisions on this and allowing a lower age of eligibility for Medicare (including perhaps a “buy-in”) are other key priorities that the administration and Congress should take up in coming months.

Finally, the pandemic has highlighted that the primary constraint keeping people who would otherwise like to work out of paid labor markets is caregiving responsibilities. Public investment in early child care and education (which we discuss below) could help families meet many of these caregiving responsibilities, but expansions of public caregiving for older adults and those with disabilities that is proposed in the administration’s American Jobs Plan (AJP) could also help many. These investments would allow everybody—not just the rich—to afford decent care for loved ones who are elderly or have disabilities and would improve the job quality of caregiving jobs.

Both the vital services provided by the increased caregiving spending as well as the boosts to job quality of caregiving employment will provide disproportionate benefits to women. In particular, women bear a hugely disproportionate burden in providing unpaid eldercare, and women (and particularly women of color) make up a very large majority of paid care workers. Given the large and progressive benefits of this expansion of public caregiving spending, it is encouraging to see these investments included in the AJP proposal.

Ambitious public investments

The U.S. clearly could benefit from large public investments in traditional infrastructure, but large investments in decarbonization strategies and in people are also needed.

The case for traditional infrastructure is well understood. The case for a large public role in financing and directing green investments is even more vital. Until the price of emitting greenhouse gases (GHGs) is raised significantly by policy (like a carbon tax or direct regulations), private investment in GHG mitigation (like building weatherization or installing solar panels) will remain far below efficient levels.

This green investment is optimally financed directly through the public sector, and most of it should be financed with debt, even if the economy has largely recovered. After all, our children and grandchildren will be far better off inheriting an economy with a higher debt ratio but lower stock of GHGs in the atmosphere than inheriting an economy with low debt but higher temperatures.

With regards to investment in people, besides the expansions in care investments for older adults and those with disabilities highlighted above, early child care and education and higher education could be made much more affordable and higher quality for U.S. families. This would not only benefit the receiving families directly, but would also have large spillover effects in building a more productive economy overall. Further, anything that improves the resources available to poorer families with children has been shown to have large effects down the road in boosting their productivity as adults. This includes direct provision of health and nutrition assistance, but also cash. Finally, since these investments also call for higher pay and better training for the early child care and education workforce, they will provide disproportionate benefits to women (and disproportionately women of color), who make up the large majority of workers in this sector currently.

The American Jobs Plan (AJP) includes many of the investments in traditional infrastructure and green investments, while the American Family Plan (AFP) has excellent provisions to make both early child care and education as well as higher education more affordable for families. The AFP also extends the large increases in the Child Tax Credit included in the ARP until 2025. These are big steps in the right direction.

Tax reform for the common good

Much of the spending proposed so far by the Biden administration—particularly those meant for macroeconomic stabilization and one-time investments—can and should be financed with debt, not taxes. But expansions of permanent programs should be mostly financed with more revenue. The U.S. can certainly afford this—we are among the most lightly taxed rich nations in the world. The first tranches of increased tax revenue to finance permanent spending expansions should be raised from high-income households, either through increases in the progressivity of the tax code or through greater and more progressively targeted tax enforcement. Other areas of tax reform should aim to correct economic “bads” like GHG emissions and financial speculation.

So far, the Biden administration’s proposed taxes are clearly progressive. The AJP includes increases in taxes paid out of corporate income (essentially repealing large chunks of the most egregious bits of the Tax Cuts and Jobs Act (TCJA) from 2017), and the AFP is said to include tax increases on capital gains accruing to the highest-income households. This includes the elimination of an egregious loophole (“step-up basis”) that allows large intergenerational transfers of wealth to happen untaxed. All these taxes affect high-income households while barely touching low- and middle-income households.

The administration has also made several welcome and concrete steps in moving toward greater tax enforcement, particularly on high-income households and corporations. This includes a multilateral effort to crack down on abusive tax havens.

Taxes on economic “bads” like GHG emissions and financial speculation have not yet been mentioned. We hope further progress on these fronts is made.

Conclusion

The administration deserves praise for what has happened so far and much of what they have proposed. And normally one would want to cut a little slack for strategies yet formed on passing key bills. After all, it has only been 100 days. But the economic challenges facing U.S. families are huge and time is ticking. As hard as it is to believe, every 100 days going forward into 2022 need to be just as productive as the first in meeting these challenges.

Why it matters: Rising premiums, out-of-pocket costs, and public health spending are crowding out income gains and spending on other goods and services. Meanwhile, our health care system ranks low on measures of equity and quality relative to peer countries. Recognizing the role of health care prices in driving health spending is crucial: Efforts to contain costs by controlling use are not only economically inefficient but also dangerous—leading to decreases in medically indicated and preventive care that would improve health outcomes for Americans and that is more cost efficient in the long run.

What can be done about it: Policymakers need to focus on controlling health care prices, not restricting use. While much attention has understandably focused on the ambitious vision of adopting a “single-payer” or “Medicare-for-all” plan, there are steps policymakers could adopt in the nearer term that would allow many of the virtues of single-payer to be realized more quickly and that could serve as useful stepping stones to even more ambitious reform:

• Extend already existing public plans and incorporate a “public option” into ACA exchanges.
• Adopt “all-payer rates”—mandating that the same prices apply regardless of who is paying—to allow private insurers to benefit from the bargaining power of Medicare.
• Pursue policies that would diminish the intellectual property rights monopolies of key health care sectors, like pharmaceutical companies.
• Increase antitrust scrutiny of consolidation of hospitals and physician networks.

Introduction and key findings

Health care remains one of the most salient policy issues on the minds of American households. Polling indicates that people who currently have coverage are generally “satisfied with how the healthcare system is working for [them]” (Auter 2016). This holds true for both public coverage (Medicare and Medicaid) and employer-sponsored insurance (ESI), with unionized workers particularly likely to be satisfied with their ESI plans. On the one hand, this broad-based satisfaction with ESI is good news, as this type of coverage is by far the largest single source of health insurance for American families, with roughly 181 million enrollees. However, another survey stresses that even currently covered Americans realize that there is great pressure on the future sustainability of all forms of health coverage. When asked if they are satisfied about the “total cost of health care in this country,” only 14 percent respond “yes,” with 84 percent saying that they are dissatisfied (CNN/ORC 2017).

This widespread dissatisfaction with health care costs is completely rational; the cost of American health care is exceptionally expensive while its quality is subpar when compared with health care in similarly rich nations.1 Further, the high (and rising) costs of health care have drawn too little attention from policymakers. The Affordable Care Act (ACA) was a major step forward in addressing some key problems with the American health care system. The ACA expanded coverage to millions and established clear and popular rules to eliminate bias against preexisting conditions. Its provisions provided much better protection against personal bankruptcy due to medical costs. These advances notwithstanding, the provisions of the ACA were insufficient for achieving the aim of reining in the fast-rising costs of American health care without sacrificing households’ access to needed medical care.

Worse, since the ACA was passed, the Republican-controlled Congress has done nothing to usefully reform or strengthen the ACA but has instead sought to subvert its gains. A full repeal of even the most popular ACA provisions (like the ban against discrimination on the basis of preexisting conditions) just barely failed in Congress, and the Trump administration has engaged in numerous efforts to thwart the ACA’s effectiveness.2

On the cusp of the 2018 election, this has left the American health care system in limbo. The GOP has undermined the already insufficient reforms of the ACA without offering any alternative plan to provide health security. At the same time, many Democrats have expressed considerable desire to have the United States adopt a “single-payer” health system.3

Doing nothing but undermining an already-troubled American health system should not be a serious policy option. While a single-payer system has large potential benefits, moving toward such a system will almost certainly be a long process that promises little short-run relief for families. Luckily, however, many of the key policy virtues that allow more robust public systems (like Medicare or the health systems of peer countries) to achieve greater cost containment without sacrificing quality can be realized much more quickly and with potentially less political opposition.

These cost-containment strategies would not only make a large public role for health care more plausible, they would also supply needed short-run relief to the private American health care system, particularly the system of employer-provided health care. This ESI system, which provides coverage for American families through the workplace and is paid for with contributions from both employers and employees, is by far the single largest source of health insurance coverage in the United States today.4 This means that the ESI system is where key problems troubling the American health insurance system are most visible to working American families. In the decade before the Affordable Care Act was passed, the ESI system was clearly burdened with the most pressing problem facing the overall American health insurance system: rapidly rising costs. These rising costs in turn led to the rapid erosion of ESI coverage, even during the economic expansion of the early and mid-2000s.5 As costs have slowed a bit in the past decade, ESI coverage rates have largely stabilized. The lesson here is clear: controlling health care costs is vital to the economic well-being of the majority of Americans.

This report highlights trends in health care costs in both ESI and the overall American health system. It demonstrates the various channels through which rising health care costs put downward pressure on the growth of living standards of American families, and it identifies the key sources of rising health costs. Finally, it provides a series of recommendations for policymakers looking to pass reforms to slow the rate of health care cost growth, identifying, in particular, broad approaches that do and do not have merit.

Key findings

• Premium prices in the employer-sponsored insurance system have risen rapidly over the past two decades. The total cost of a family ESI plan rose from $5,791 to $18,142 between 1999 and 2016.6 As a share of average annual earnings for the bottom 90 percent of the workforce, these premium costs rose from 25.6 to 51.7 percent over that same period.

• Fast premium growth did not purchase better protection from health care cost growth for workers. Out-of-pocket costs rose faster between 2006 and 2016 than total costs or costs paid by insurers did. Out-of-pocket costs rose 53.5 percent cumulatively over that time, while total costs rose 49.2 percent and costs paid by insurers rose 48.5 percent.

• The rapid growth in health care costs has led to a rapid increase in total health spending as a share of GDP. This measure has risen from 5.2 percent of U.S. GDP in 1963 to 8.4 percent in 1979 to 17.4 percent in 2016.

• Among industrialized nations, the U.S. has the highest health care costs and below average quality and utilization. When comparing the American health system with the health systems of advanced economy peer countries, American health care spending and prices are by far the highest, while utilization—the volume of health goods and services being consumed—and measures of quality are decidedly below average.

• Policymakers need to focus on controlling prices, not utilization. The weight of the empirical evidence in this report indicates clearly that policies to “bend the health care cost curve” should focus on efforts to control prices, not use. The common root in strategies to contain prices in the health care sector is the need to bring countervailing market power to bear against monopoly-like pricing power currently wielded by health care providers.

• Policy focusing on utilization leads to inefficiency. To date, most efforts to control use of health care services have been poorly tailored because they focus simply on “cost sharing”—or raising the cost of receiving health care across the board. Raising the marginal cost of health in this way does reduce utilization, but patients do not cut back only on low-value care. They also cut back on medically indicated care that could actually be cost-saving in the long run.

• Meaningful policy to address pricing includes public negotiation of “all-payer rates.” The most straightforward way to provide countervailing force against the pricing power of health care providers, as well as to make health care prices informative to consumers, is more robust public negotiation of prices and the extension of this public-sector pricing power to all payers. For example, policymakers should strongly consider setting caps on rates as a tool to slow growth and provide greater transparency and accountability to consumers.

These findings underscore the depth of the challenges that remain to making our health care system more equitable and efficient. They also provide a clear series of steps that policymakers can take to improve this situation. These steps can be part of the groundwork for a more fundamental transformation of the American health system but would also ensure that the current pillar of this system—ESI—will remain strong as new reforms are made.

The canary in America’s health care coal mine: Rising costs for ESI

Table 1 shows one of the most salient trends in American economic life over recent decades—the rising cost of premiums for ESI. It shows employee contributions for these premiums, as well as their total cost, for both family and individual plans. The top panel of Figure A visually depicts the dramatic rise in health care costs as a share of income.

Table 1

The average annual employee contribution to single ESI premiums rose from $318 to $1,129 between 1999 and 2016. This 7.7 percent average annual increase far outpaced the 2.6 percent average annual increase in (nominal) average earnings for the bottom 90 percent of wage earners. This relatively rapid growth of ESI single premium costs led to employee payments for ESI single premiums rising from 1.4 percent to 3.2 percent of average annual earnings for the bottom 90 percent, while employee payments for family plans rose from 6.8 to 15.0 percent of earnings over the same time.

While increased costs of employee contributions to ESI premiums are one of the most salient ways that rising health costs can put pressure on living standards, most economists would agree that in the long run even rising employer contributions to ESI premiums harm potential wage growth.7 The intuition is simple: employers care about the level of employee compensation, not its composition. If workers would rather have more compensation in the form of health insurance contributions and less in cash, employers should in theory be happy to oblige this. This reasoning is why we also show the share of total ESI premiums (both employee and employer contributions) in Table 1 as well. These total premiums have grown slightly slower than just the employee contributions, but still rapidly enough to increase their share of average earnings of the bottom 90 percent in every year. Total ESI premiums for singles rose from $2,196 in 1999 to $6,435 in 2017, and as a share of average annual earnings for the bottom 90 percent, they rose from 9.7 percent to 18.3 percent. For family coverage, total ESI premiums rose from $5,791 in 1999 to $18,142 in 2016, and as a share of average annual earnings for the bottom 90 percent, they rose from 25.6 percent to 51.7 percent.

A straightforward way to interpret the findings shown in Table 1 (looking just at the dollar amounts) is that average annual earnings that could be spent on non-health-care-related goods and services could have been $4,239 higher for those with individual ESI coverage in 2016 but for the rise in ESI premiums. Looking at the change in ESI premiums as a share of annual earnings gives a potentially more realistic description of what the boost in earnings could be had premium price inflation not run ahead of wage growth. Had single ESI premiums simply stayed constant as a share of average earnings, the table shows that this would imply a boost to annual pay of 8.6 percent (or $3,032).8 For those with family ESI coverage, this boost to pay that could be spent on non-health-related consumption could have been $12,350 (as a simple dollar amount), or a 26.1 percent raise ($9,161)9 even if ESI premiums had simply stayed constant as a share of average earnings. Given that nominal annual earnings rose by 54.8 percent cumulatively between 1999 and 2016, this implies that earnings growth for those with single ESI coverage could have been 15.7 percent as rapid, and earnings growth for those with family coverage could have been 47.6 percent as rapid, but for the rising cost of ESI premiums.10

If these rising ESI premiums were purchasing more insulation against health care costs for workers, then perhaps their rapid rise in recent years would have stung less. In other words, if workers were paying less out of pocket when they go to the doctor, then the higher premiums might seem like a good deal. But out-of-pocket costs for health care (that is, costs not paid for by insurance companies even after they have received employees’ premiums) rose rapidly from 1999 to 2016 as well. The bottom panel of Figure A shows the rise of total health costs for those covered by ESI, the rise in costs covered by ESI, and the rise in costs covered by insured households’ out-of-pocket payments (deductibles, copayments, and coinsurance). Between 2006 and 2016, total health costs cumulatively rose by 49.2 percent. Out-of-pocket costs actually rose slightly faster in this period, at 53.5 percent.11 Costs covered by insurance rose by 48.5 percent. This indicates clearly that the rapid growth in ESI premiums paid in this time did not translate into enhanced coverage of total health costs (i.e., reduced out-of-pocket costs for insured households).

Figure A

In short, rising ESI premiums seem to be paying for essentially the same level of protection against health cost shocks as they ever did, with the overall cost of health shocks increasing over time. This implies that the real driver behind ESI premium growth is underlying health costs—an implication that is confirmed in the next section of this report.

Finally, besides their potential role in stifling wage growth, the rapidly rising costs of ESI premiums surely played a role in the rapid erosion of ESI coverage over much of this period. Gould (2013a) documents the erosion in the share of Americans covered by ESI in most of the period between 2000 and 2012. Before 2008, much of this fall was surely driven by historically fast “excess cost growth” (ECG) of health care. (As described in the next section, we define ECG as the difference between the per capita growth rate of potential GDP and the per capita growth rate of health costs.) After 2008, the pace of this excess cost growth relented (at least temporarily), and coverage declines were driven largely by the labor market crisis of the Great Recession. In recent years, ESI coverage has largely stabilized in a post-recession environment, with relatively moderate excess health care cost growth.

The rising cost of health care is a systemwide problem

Given that rising ESI premiums seem to not be paying for more comprehensive coverage, and seem instead to simply be paying for constant protection against steadily rising health costs, it seems likely that trends in premium growth are being driven by overall health costs. The simplest test of the hypothesis that rising health costs are not unique to ESI coverage can be found in Figure B. This figure shows annual growth rates of per capita potential gross domestic product (GDP) and per capita growth rates of health costs, and it also charts the growth in national health spending as a share of potential GDP over time.

GDP is essentially a measure of total domestic income, and potential GDP is a measure of what GDP could be in a given year assuming the economy did not suffer from excess unemployment during that year.12 For health costs, we show average annual growth in national health costs divided by the total population of the United States. The difference between the per capita growth rate of potential GDP and the per capita growth rate of health costs is one version of what is often labeled “excess costs” in health care. Because we are interested in growth rates of health care costs, and because these growth rates are influenced by price changes, neither of these series are adjusted for inflation; instead, we simply track nominal growth in both measures.

Figure B

As the chart shows, the per person annual rate of health care cost growth is substantially faster than annual growth in potential GDP per person over the entire period, by an average of 2.4 percentage points between 1963 and 2016 and an average of 2.1 percentage points between 1979 and 2016. This more rapid growth of health care costs implies that these costs have been rising over time as a share of total U.S. GDP. The figure also charts this evolution, indicating that health care spending has risen from 5.2 percent of U.S. GDP in 1963 to 8.4 percent in 1979 to 17.4 percent in 2016.

Figure C also shows the average annual excess cost growth of health care for the period from 1979 to 2007, just before the Great Recession, and for the period since 2007 (the period during and after the Great Recession). In addition to per capita rates for the entire U.S. population, Figure C also shows ECG rates per insurance enrollee (that is, for just the population that is covered by insurance). Figure C highlights that excess cost growth was quite steady for both of these populations until roughly a decade ago, when it fell substantially.

Figure C

Figure C also shows that between 1979 and 2007, excess costs were slightly higher when calculated with health care costs divided by the share of the insured population rather than the entire population. Unlike nearly every other advanced economy, the United States has allowed a large share of its population to go without access to health insurance each year for decades. Because lack of insurance can make seeking medical care prohibitive on the grounds of cost, this failure to provide universal access to insurance may well have slightly held costs down at the national level. Figure C also highlights that the relative success in containing costs post-2007 is even more dramatic once one accounts for the large increase in the share of population covered in that time; excess cost growth calculated using a measure of cost per insured is far slower post-2007.13 While the recent slowdown in excess health care costs is welcome, policymakers should not be complacent about its durability, for reasons that are discussed in depth in Appendix A.14

Finally, it is worth emphasizing that—as has been documented extensively—the fast pace of health spending growth has not bought high health care quality for the United States relative to other advanced economies. In international comparisons, American health outcomes are decidedly below average when compared with these rich country peers. Figure D shows a comparison of 11 countries’ health systems across a range of measures, based on the findings of Schneider et al. (2017).15 In Schneider et al.’s study, the U.S. is ranked fifth out of 11 in “care process,” 10th out of 11 in “administrative efficiency,” and dead last in “equity,” “affordability,” and “health care outcomes.” The combination of “affordability” and “timeliness” represents a country’s score on “access,” and Schneider has the U.S. ranked last on this measure as well. Finally, the U.S. is also ranked last overall.

The scores in Figure D are normalized so that the weakest performance measured for each criterion is equal to 1. The figure shows the United States’s normalized performance measure alongside the average, minimum, and maximum of the remaining 10 non-U.S. countries. Not shown in Figure D, but worth noting, is the fact that within the “heath care outcomes” ranking, in Schneider et al.’s underlying data, the United States ranks last in the following specific outcomes: infant mortality, the share of nonelderly adults with at least two chronic health conditions, life expectancy at the age of 60, mortality amenable to health care, and the 10-year decline in mortality amenable to health care.16 In short, international comparisons provide no evidence that high U.S. spending buys it a particularly good national health system.

Figure D

How rising health spending puts pressure on growth of living standards

Rising health care costs crowd out household resources that could be spent on other things. In the first section of this report, we highlight one potential channel through which rising health costs could pressure living standards: crowding out potential growth in cash wages as employers put more money into compensation in the form of health insurance premiums for ESI coverage.17 Besides this crowd-out of cash wages, rising health care costs can also pressure living standards by forcing families to spend more of their own money on insurance premiums or on out-of-pocket health care costs like copays or insurance deductibles increase.

Finally, even though the U.S. federal government has a smaller role in providing health care financing relative to most international peers, this does not mean that this role is small relative to other important economic benchmarks. In 2017, for example, the federal government spent more than $1.2 trillion, or about 6.7 percent of total GDP, on Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) (CBO 2018c). Figure E tracks the role of various financers of health care spending in the United States over time. The most striking finding is that public sources of payment have grown the fastest by far; by 2016, public sources accounted for more than half of all spending.

Figure E

Publicly provided health insurance is funded through a mix of taxes (both general revenue and dedicated revenue sources), user premiums, and increased debt. Dedicated funding sources for these programs include the Medicare portion of the Federal Insurance Contributions Act (FICA) taxes (2.9 percent of wage incomes); a surcharge on high incomes included as part of the ACA (0.9 percent on cash incomes over $200,000); the application of the Medicare portion of the FICA tax to investment incomes over $200,000 per year; and premiums that finance Medicare Parts B and D. In 2015, these dedicated revenue sources raised just under 2 percent of GDP (TPC 2018), leaving almost 5 percent of GDP spent on public insurance programs to be financed by a contribution of general federal government revenue, state revenues (for their contributions to Medicaid), and debt.

In the remainder of this section, we document how each of these direct channels that finance health care spending can lead to pressure on growth in non-health-related spending, and we provide an empirical assessment of how large this pressure might be.

Income pressure stemming from out-of-pocket costs

Figure F shows a sharp long-run decline in the share of total health costs paid out of pocket by households since 1961. However, this decline has done essentially nothing to relieve the pressure that out-of-pocket (OOP) costs puts on household incomes: Figure F also shows the share of household income for the bottom 90 percent of households that went to paying medical OOP costs for each year from 1961 to 2014. Since 1961, OOP costs have fallen from nearly 46 percent to roughly 11 percent of total health spending, yet the share of household income for the bottom 90 percent that must go to OOP costs has not really budged since 1979—averaging roughly 4 percent of income in the years since then.

Figure F

Income pressure stemming from increases in costs for employer-provided health insurance

As discussed above, Table 1 shows the rise in average ESI premiums as a share of the bottom 90 percent’s annual earnings. Figure A provides an illustrative estimate that ESI premium growth since 1999 could have crowded out $4,239 in spending on non-health-care-related goods and services for an employee with single coverage: $811 through higher employee contributions to premiums, and the rest through potentially lower cash wages due to employers’ need to contribute more to premiums instead of cash wages.

Figure G shows employer contributions to ESI premiums as a share of total labor compensation and as a share of compensation for the bottom 90 percent since 1979, using data from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis as well as data on comprehensive household incomes from the Congressional Budget Office.18 Between 1960 and 2016, employer contributions to ESI premiums rose from 1.1 to 8.2 percent of total employee compensation. Data for examining the bottom 90 percent are only readily available since 1979. Between 1979 and 2016, employer contributions as a share of compensation rose by 3.9 percentage points overall, but rose by 4.4 percentage points for the bottom 90 percent of earners.

Figure G

If employer contributions to ESI premiums had remained constant as a share of cash wages since 1979, cash compensation could have been $387 billion higher by 2016 for the total labor force, or $327 billion higher for the bottom 90 percent.19 For the bottom 90 percent of full-time-equivalent employees, this would imply cash wages that were higher by roughly $2,740 on average. Appendix B gives some texture to this aggregate analysis by examining the potential crowd-out of cash wages by rising ESI premiums across wage fifths.

Income pressure stemming from rising public costs of health coverage

The rise in spending on public health coverage stems from rising per-enrollee costs of this coverage combined with an increase in the population covered by public insurance. A simple way to hold the latter influence constant is to look at what public spending on health coverage would have been in recent decades had the “excess cost” of these insurance programs been zero. We provide a broad measure of this “excess cost” in Figure B—the growth rate of health costs per capita minus the growth rate of potential GDP per capita. For Figure H, we use the excess growth rates calculated by the Congressional Budget Office (CBO) specifically for the public programs. CBO measures take into account demographic changes within the public programs that may have influenced costs. Figure H charts actual federal spending on health costs versus what federal spending would have been in 2016 had there been no excess costs in health programs since 1987. The figure shows that public spending as a share of GDP in 2016 would have been 1.3 percentage points—or more than $250 billion—lower had there been no excess cost growth in public insurance programs over that time period.

Figure H

Pressure on incomes stemming from rising health costs is projected to rise significantly

As discussed above, by 2016, excess health care cost growth had already caused the employer-provided premium share of total compensation to rise by 3.9 percentage points overall (and by 4.4 percentage points for the bottom 90 percent) since 1979; it had also caused public health spending as a share of GDP to rise by 1.3 percentage points since 1987. But this past performance may understate potential future pressures from health care cost growth. The 30 to 40 years ending in 2016 that saw pervasive excess health care growth saw these costs start from a much more modest base.

Going forward from today, rates of excess health care cost growth in line with the historical averages over the past 40 years would put rapid and large pressure on Americans’ incomes available for nonhealth consumption. Figure I highlights the outcome of such a forecast, showing employer contributions to ESI premiums and spending on public insurance programs as a share of total GDP in two scenarios. In the first scenario, excess cost growth follows the path forecast by the CBO long-term budget outlook for public programs. For employer-paid ESI premiums, we use the forecast of the Social Security Administration (SSA) about the pace of decline in the ratio of earnings to total compensation, a decline that SSA attributes entirely to the rising cost of health care (SSA 2018). In the second scenario, there is no excess cost growth in either public or private health costs.

Under the current projections path, spending on public programs and by employers on ESI premiums reaches 18.1 percent of GDP by 2048, but without excess cost growth, it reaches only 15.6 percent of GDP. The 2.5 percentage-point difference implied by these divergent paths would imply almost $500 billion in additional resources in today’s dollars. Crucially, between 2017 and 2035, a significant portion of the projected rise in public spending is attributable to the baby boom generation aging fully into Medicare eligibility.20 After the baby boomers are absorbed into Medicare, the upward pressure on health spending stemming from pure demographics is expected to slow dramatically, and excess cost growth becomes almost the sole explainer of trends thereafter.

Figure I

Does America overutilize health care? Or is it just too expensive?

The rise in health spending as a share of GDP (shown in Figure B) could in theory stem from either of two influences: a rising volume of health goods and services being consumed (increased utilization) or an increase in the relative price of health care goods and services. Figure J provides evidence suggesting which of these is the prime driver. The figure shows price-adjusted health care spending as a share of price-adjusted GDP (“health spending, real”) and also shows the relative evolution of overall economywide prices and the prices of medical goods and services (“GDP price index” vs. “health care price index”). It shows clearly that health care has risen much more slowly as a share of GDP when adjusted for prices, rising 2.1 percentage points between 1979 and 2016, as opposed to the 9.2 percentage points when measured without price adjustments (“health spending, nominal”). The figure also shows that since 1979, prices for health-care-related goods and services rose more than twice as much as economywide prices.

Figure J

The evidence in this figure argues strongly that prices are a prime driver of health care’s rising share of overall GDP. This finding is important for policymakers to absorb as they attempt to find ways to rein in the rise of health costs in coming years. International comparisons (highlighted in the next section) provide even more reason to think that the primary problem with American health care costs is prices instead of utilization.

International evidence confirms that it is prices, not utilization, that make American health care so expensive

Some researchers have made the claim that quality improvements in American health care in recent decades have led to an overstatement of the pure price increase of this health care in official statistics like those in Figure J.21 On its face, this is a reasonable enough sounding objection—most of us would rather have the portfolio of health care goods and services available today in 2018 than what was available to Americans in 1979, even if official price indexes tell us that the main difference between the two is the price.

But even if official price indexes understate the increase in health care quality made available to U.S. households in recent decades, this should not cause policymakers to be complacent about the pace of health care price growth. A look at the U.S. health system from an international perspective reinforces this view. The first finding that leaps out from this international comparison is that the United States spends more on health care than other countries—a lot more. Table 2 shows the share of health care spending in 2017 normalized by overall GDP for a group of 21 advanced country peers. The 17.2 percent figure for the United States is almost 30 percent higher than the next-highest figure (12.3 percent, for Switzerland). It is almost 80 percent higher than the group average of 9.7 percent. Table 2 also shows the average annual percentage-point change in the health care share of GDP, as well as the average annual percent change in this ratio over time.22

A particularly striking finding from this table is that not only did the United States spend more on health care as a share of the overall economy than any of its peers in the first year for which data is available, it has also generally pulled away from these peers in subsequent years. When growth in health spending is measured as the average annual percentage-point change in health spending as a share of GDP (using earliest data through 2017), the United States has seen unambiguously faster growth than any other country in recent decades. When growth in health spending is measured as the average annual percent change in this ratio, the United States has seen faster growth than all other countries except Spain and Korea (two countries that are starting from a base period ratio of half or less of the United States).

Table 2

Examining data on utilization and prices separately shows clearly that it is high prices that drive the U.S. position as an outlier in health care spending. Figure K shows the utilization of physicians and hospitals in the United States compared with the median, maximum, and minimum utilization of physicians and hospitals among its OECD (Organisation for Economic Co-operation and Development) peers. The United States is well below typical utilization of physicians and hospitals among OECD countries.

Figure K

While utilization in the United States is typically lower than utilization levels for its industrial peers, prices in the United States are far above average. Figure L shows the findings of the latest International Federation of Health Plans Comparative Price Report (CPR). The CPR shows the prices of various medical goods and services in the United States compared with prices for the same goods and services in a number of other advanced countries.

Figure L

For the 21 goods and services surveyed in the CPR, average prices in the United States are higher than the non-U.S. average for all 21 and are the highest among all the countries (that is, the U.S. average exceeds the non-U.S. maximum) for 18. Averaged across the non-U.S. mean prices, prices in the United States are more than twice as high as prices in peer countries. And even when averaged across the non-U.S. maximums, average U.S. prices are more than 40 percent higher. Notably, a number of these goods and services are highly tradeable—particularly pharmaceuticals. The fact that international tradeability has not eroded enormous price differentials between the United States and other countries should be a red flag that something strikingly inefficient is happening in the U.S. health care market.

Figure M shows some specific measures of utilization that correspond to the price data highlighted in Figure L: the incidence of angioplasties, appendectomies, cesarean sections, hip replacements, and knee replacements, normalized by the size of the country’s population. On two of the five measures, the United States has either a typical (angioplasties) or relatively low (appendectomies) utilization rate relative to other countries’ averages. On two more measures (C-sections and hip replacements), the average of other countries’ utilization levels is roughly three-quarters of the United States’s utilization level. For all four of these measures, the United States is well below the highest utilization rate. The United States is only the highest-utilization country—by a small margin—when it comes to knee replacements. In short, if one were looking only at the data charting health care utilization, one would have little reason to guess that the United States spends far more than its advanced country peers on health care.

Figure M

Figure N shows another set of international comparisons of health care inputs and prices, from Laugesen and Glied (2008). Laugesen and Glied compare physician services’ utilization and salaries in Australia, Canada, France, Germany, and the United Kingdom with those in the United States (in the figure, the U.S. level of each is set to 1). They find that utilization of primary care physicians by patients is higher in all of these countries, by an average of more than 50 percent. Yet salaries of primary care physicians are higher in the U.S., by roughly 50 percent. The utilization measure they use for orthopedists is hip replacements. Hip replacements (normalized by the population) are a bit rarer in Canada than the United States, with Canada undertaking 74 hip replacements for every 100 in the United States. They are roughly as common in Australia (94 to 100) and the United Kingdom (105 to 100), and they are more common in France and Germany. Orthopedist salaries are much higher in the United States than in any peer country—more than twice as high on average.

The salary comparisons in Figure N are net of doctor’s debt service payments for medical school loans, so this common explanation for high American physician salaries cannot explain these differences.

Figure N

As we have noted, many rightfully argue that most Americans would not want to trade the health care available to them today for what was available in decades past, even as official price data indicate that all that has changed is the price. However, the international evidence indicates clearly that most Americans should be willing to trade the health care available to them today for what is available to the residents of most other advanced economies. This health care available abroad is far cheaper and yet of at least as high quality. The relatively low level of utilization and very high price levels in the U.S. provide suggestive evidence that the faster rate of health care spending growth in the United States in recent decades has been driven on the price side as well. This inference is supported with some more specific evidence in Appendix C, which provides indirect estimates of the rise in hospital prices across countries over time.

The appropriate policy focus going forward: Price, not utilization

It is clear that the United States is an outlier in international comparisons of health care costs. It is also clear that the United States is an outlier not because of overuse of health care but because of the high price of its health care.

As discussed above, the United States is decidedly unremarkable on health outcome measures (see Figure D) and is even toward the low end of many crucial health measures.23 On measurable utilization of health care, consistent with our findings, most studies similarly find the United States to be below average on broad measures of utilization when compared with its advanced country peers.24 Finally, the indirect evidence on hospital prices presented in Appendix C suggests that prices have likely been rising faster in the U.S. than in the vast majority (18 of 21) of peer countries. All of this evidence strongly indicates that getting U.S. health care prices more in line with international peers could have significant success in relieving the pressure that rising health care costs are putting on American incomes.

Attacking utilization is a dangerous strategy

Even though many health researchers have noted that price—not utilization—is the clear source of the dysfunction of the American health system, it is striking how much attention has been paid to reducing utilization, rather than reducing prices, when it comes to making health policy in the United States in recent decades.

In the years leading up to the passage of the ACA, many policymakers cited the Dartmouth Atlas of Health Care and its research spinoffs (e.g., Skinner et al. 2009) to claim that up to a third of American health spending was wasteful; hence, they concluded, great opportunities abounded to squeeze out this waste by targeting lower utilization. These findings were a great source of temptation for policymakers, and they were incredibly influential in the American policy debate in the run-up to the ACA. The problem is, even if the Dartmouth research was entirely correct, it was always going to be hard to figure out how to operationalize these findings for policy. The most obvious complication was how to construct policy levers to precisely target which third of health care spending was wasteful.

Further, subsequent research in recent years has highlighted additional reasons to think that the Dartmouth findings would be difficult to translate into policy recommendations. The earlier Dartmouth Atlas findings were largely gleaned from looking at regional variation in spending by Medicare. The Atlas found large regional variations in costs and found that high-cost regions did not seem to produce better health outcomes. The authors of the Atlas hypothesized that regional differences in physician practice drove price differentials that were not correlated with quality improvements. Policymakers and analysts have often made the argument that if the lower-priced, but equally effective, practices of more efficient regions could be adopted nationwide, then a large chunk of wasteful spending could be squeezed out of the system. However, research by Doyle (2011) and Sheiner (2014b) indicates that the noncorrelation between spending and outcomes found in the Dartmouth research may well be driven by a failure to fully control for the socieoeconomic and health characteristics of patients. Further, Cooper et al. (2018) study the regional variation in spending on privately insured patients and find that it does not correlate tightly at all with Medicare spending. This finding casts doubt on the hypothesis that regional variation in practice is driving trends in both spending and quality, as these type of region-specific practices should affect both Medicare and private insurance payments.

Policies to increase cost sharing are a cost blunderbuss—A scalpel is needed

The evidence reviewed above casts doubt on the potential to rein in health costs on the utilization side. And it’s certainly not possible to eliminate wasteful and unproductive care simply by raising the patient cost of care across the board, as we show below. Yet this blunderbuss approach of increasing “cost sharing” indiscriminately is by far the most common theme in policy proposals aimed at reducing the growth rate of health spending.

On the conservative side, the last couple of decades have seen much writing from policy analysts about “consumer-directed health care” and efforts to put health care consumers’ “skin in the game” as a strategy to constrain costs.25 The rhetoric from the center left rejects this view, but their actions tell a different story: Perhaps the single most-trumpeted cost-containment device included in the ACA was the so-called Cadillac Tax, which seeks to contain costs precisely by forcing health care consumers to face a higher share of marginal costs. This excise tax would be levied on employer-provided health benefits above set limits, thus incentivizing employers to offer less expensive health plans, which would in turn translate into higher out-of-pocket costs for workers.26

The logic of forcing health consumers to face higher marginal costs of buying health care is based in the economics of moral hazard: If people do not face the marginal cost of undertaking a behavior, they’ll do more of it. In the case of health care, insured consumers pay fixed premiums every month regardless of whether or not they visit a doctor. Then, when they do visit a doctor’s office or go to the hospital, insurance pays for some (often even most) of the marginal cost of this visit. Once the fixed cost of paying a premium is met, each subsequent visit to a health provider is then partially to fully subsidized by the insurance company, and this means that the patient does not face the full marginal cost of the decision to obtain health care.

Even the most dogmatic proponents of solving moral hazard would not, of course, endorse outlawing insurance as a means of containing costs. Instead, they would argue that most Americans are simply overinsured and that more health care spending should be financed out of pocket until those costs become prohibitive, at which point insurance would then properly kick in.27 Being overinsured and not facing the full marginal cost of each new visit to a health care provider is thought to make Americans overconsume health care, potentially using resources (i.e., money paid out by their insurance companies) to obtain treatments that they would not have sought had these treatments’ full marginal cost been faced (that is, had they been required to pay the costs themselves).

However, this focus on increasing patient cost-sharing is poorly designed for smart cost containment and could do significant harm, for a number of reasons. First, unless one is willing to increase cost sharing even for truly catastrophic medical costs, such measures will miss the primary cost drivers in the U.S. health care system. Eighty percent of health dollars are spent on just 19 percent of health consumers, and 50 percent of health dollars are spent on just 5 percent—presumably the sickest patients (Gould 2013b). In other words, encouraging relatively healthy people to cut back on health care simply misses the vast majority of health care costs, and no one would suggest that expensively sick patients should be required to pay more than they already do (which is likely already too high relative to their resources in many cases).

Second, the assumption that all moral hazard results in economically inefficient overconsumption of health care may well be wrong. Nyman (2007) directly questions this theory by arguing that a large portion of moral hazard represents health care that sick consumers would not otherwise have had access to without the income that is transferred to them through insurance. This portion of moral hazard—the transfer of income—is efficient and generates a welfare gain. Take the example of an adult who has lost front teeth in a bicycling accident. Having missing teeth is obviously not life-threatening, but it is quite likely that if insurance gave the cash-equivalent cost of replacing the teeth to this person, they would opt to do precisely this and not spend the cash on other goods and services. As long as the income transfer made possible by insurance was spent buying health care and not something else, then this portion of the moral hazard caused by insurance is efficient.

This recognition that not all moral hazard is economically inefficient is becoming well understood in other branches of economics. Chetty (2008) makes similar arguments in the context of unemployment insurance, focusing on the fact that unemployment insurance benefits solve a liquidity problem rather than creating a disincentive to look for work. His research differentiates the moral hazard effect from the relief of liquidity constraints by comparing households that can and cannot smooth consumption through a spell of unemployment with assets or income from other sources, such as a working spouse or accumulated wealth. He finds that higher-than-average unemployment insurance benefits increase unemployment duration only for workers with no liquid wealth. This suggests strongly that it is the relief of liquidity constraints and not the disincentive to work—stemming from reductions in the “cost” of leisure (i.e., the loss of income) spurred by the receipt of UI—that drives responses. Chetty explicitly notes that this analysis could apply even more strongly to the case of liquidity constraints in the purchase of health care. This would be particularly true in the case of individuals with serious illnesses who require expensive treatments, as the liquidity demands imposed by contracting such an expensive illness would dwarf those needed to finance a short spell of normal consumption while unemployed.

Third, short-run cutbacks in the consumption of health care can end up being “penny wise and pound foolish.” If increased cost-sharing leads some patients to cut back on medical spending, they may end up cutting back on medically indicated treatment that could save money in the long run, especially for vulnerable populations and those with chronic conditions. Goldman, Joyce, and Zheng (2007) find that cuts in plan generosity can lead to reduced compliance with drug therapies for chronic disease, and Buntin et al. (2011) find that enrollment in high-deductible health plans leads to reductions in the use of preventive care. Both Gruber (2006) and Hsu et al. (2006) demonstrate that higher cost sharing is detrimental to the health of the chronically ill.

McWilliams, Zaslavsky, and Huskamp (2011) find that cuts in plan generosity can lead to higher overall medical spending. Chandra, Gruber, and McKnight (2009) find that there are substantial “offset” effects to broad increases in cost-sharing rates for physician visits and prescription drugs; spending on these categories fell with higher cost sharing, but hospitalization costs rose substantially. In one related study, Goldman, Joyce, and Zheng (2007) find that higher cost sharing for pharmaceuticals is associated with an increased use of overall medical services, particularly for patients with greater needs (e.g., heart disease, diabetes, or schizophrenia).

Similarly, lower cost sharing is associated with a reduction in overall health spending, particularly for those with chronic diseases. For instance, Chernew et al. (2008) demonstrate that cost sharing with lower costs for those for whom the intervention would be most cost effective (generally the chronically ill) leads to higher compliance. Furthermore, Muszbek et al. (2008) find that increased compliance with drugs for hypertension, diabetes, and a series of other ailments will lead to higher drug costs but lower nondrug costs, leading to overall cost savings. Mahoney (2005) also finds that lowered cost sharing for diabetes patients reduces health costs per plan.

The most recent, and perhaps the most persuasive, study of the effect of increasing cost sharing comes from Brot-Goldberg et al. (2017). In this study, the authors examine the response of employees covered by ESI when the insurer imposes a number of changes to cost sharing. The entire firm being studied (the name of the firm is kept anonymous) switched from a plan that provided essentially free health care to one with a large deductible. The switch led to large reductions in medical spending, but the changes all came from reduced utilization, and the goods and services sacrificed to higher health costs were not low value; instead, they were essentially random. Perhaps most strikingly, Brot-Goldberg et al. “find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduced quantities across the spectrum of health care services, including potentially valuable care (e.g., preventive services) and potentially wasteful care.” The findings on preventive care are particularly shocking. Facing a deductible, the firm’s employees cut back on preventive care at essentially a comparable rate with their cutbacks on other health care services. Yet even under the new health plan, preventive services were all free!

Finally, Swartz (2010) points out that it is often the health care providers and not the patients themselves who are the drivers of high health care spending. To the extent that moral-hazard-induced overconsumption of health care is a significant problem, patients already active in the health care system (e.g., under the care of a physician) may be less sensitive to cost sharing. Under a physician’s care, the amount of health services consumed is more likely to reflect the decisions made by providers. At that point, patients exercise little control over the medical care they receive. The corollary is that those less active in the health care system may be more sensitive to prices, meaning they are more likely to forgo expensive care if they believe there is less of an immediate medical need for it.

The sweep of this evidence is clear. To the extent that consumers do cut back on care in response to increased cost sharing, they cut back essentially randomly, even on medical spending that is cost effective in the long run. Proponents of increased cost sharing often implicitly suggest that consumers would only be forced to cut back on luxury items (e.g., designer eyeglasses) or medical care that has little or no long-term health effects (e.g., treating a minor skin condition). But a growing body of research indicates that this is not true; increased cost sharing does indeed often crowd out health-improving and cost-effective medical interventions.

In the end, markets for health care goods and services in the United States just do not provide consumers the ability to make efficient decisions. Health care prices are dominated by monopolization and consolidation, and price rarely, if ever, matches marginal cost (a key condition for prices to allow consumers to make efficient decisions). Efforts to cut utilization without harming patient care are going to have to be led by payers and by health care providers who are hemmed in by a system that incentivizes them to provide efficient information. This is a heavy policy lift. Experiments on how to do this can certainly be undertaken, but this is certainly not the low-hanging fruit in the health care cost policy world that too many in the past have claimed it to be.

It is almost certain that no country in the world has managed to make health care prices good enough conveyors of information to rely on market-based decisions to efficiently constrain costs. Instead, other countries have largely tried to use the monopsony power of large public insurance plans to provide countervailing force against health care providers’ monopoly position. In addition, public plans in both the U.S. and abroad try to provide information on what health care goods and services provide good value based on which health care interventions are covered by insurance and which are not. This is clearly an imperfect approach, as occasionally medical interventions that might improve health outcomes for a small number of people might not get covered on the basis that for most people in most circumstances, they are “low value,” or interventions that cutting-edge research shows are low value might be hard to take away from patients who are used to receiving them without cost. But the economics of health care are complicated enough that we will never be in an optimal world, and we should take as given that policy will need to proceed under the “theory of the second best.”28

How can we use policy to restrain provider pricing power in health markets?

The recent political momentum for ambitious further reform of American health care (calls for either single-payer- or Medicare-for-all-type plans) did not spring from nowhere. Despite the large strides made by the ACA toward securing a fairer and more efficient system, there remains much work to be done, and much of this work needs to focus on locking in and extending the cost slowdowns of recent years, but in ways that do not harm health care quality.29

While a single-payer system is a worthy goal to pursue for many reasons, not just cost control, such root-and-branch reform will likely require an extended political process. That is, it is unlikely to happen quickly. However, there are incremental, but still ambitious, reforms that could be undertaken that would allow many of the virtues of single-payer to be realized more quickly. In this section, we talk about some broad reforms that could help with cost containment. These include increasing the scope of strength of already existing public programs (Medicare, Medicaid, and the ACA exchanges); adopting measures to help private payers leverage the bargaining power of the large public programs; revising the law to allow Medicare to negotiate drug prices, and pursuing other policies to diminish the intellectual monopoly power of pharmaceutical companies; and using robust antitrust enforcement to keep consolidation of medical providers like hospitals and physician practices from pushing up prices. Below we provide a short discussion of each of these.

Extend already existing public plans and incorporate a “public option” into ACA exchanges

The most obvious reform to provide countervailing power against the ability of monopoly providers to mark up health care prices is to increase the role of public insurance. Medicare (the large sort-of-single-payer program that provides universal coverage to Americans 65 and older30) is often presented as being a problem because it is projected to see costs rise and increase federal spending in coming years. However, Medicare costs have actually risen more slowly than costs in the American private insurance market in recent decades. This largely reflects the fact that Medicare’s size gives it enormous power to set the reimbursement rates it will pay health care providers. Medicare’s enrollment is now well over 50 million, and its enrollees are the highest-spending part of the population (health care spending rises with age, and Medicare provides coverage largely for the over-65 population). This gives it enormous price-setting power that no private insurer—even those that are well-managed and efficient—can match. Figure O shows the growth in per-enrollee costs for Medicare and for private health insurance, for similar benefits.

Figure O

The implications of this figure are staggering for the 181 million Americans with ESI coverage. If ESI per-enrollee costs had grown at the same rate as per-enrollee costs for Medicare since 1970, a family insurance plan that costs $18,000 today would cost roughly 48 percent less, giving workers the potential of $8,800 in additional income to spend on non-health-related goods and services.31 This is serious money.

More suggestive evidence that cost control is aided by a strong public role in providing health insurance is seen in Figure P. This figure displays data across a range of countries. For each country it shows the average annual growth in overall health spending as a share of GDP, as well as the share of GDP represented by public health spending in the first year in the data. The latter variable is meant as a stand-in for the country’s commitment to using the public sector’s monopsony power as a brake on cost growth. In theory, we could have used the growth in public spending instead, but this is obviously endogenous to growth in overall spending (i.e., fast cost growth could have spurred countries to adopt larger public systems as a cost-containment device). The scatter plot shows a clear negative relationship—large public sectors in the beginning of the data series are associated with significantly slower increases in health care costs thereafter.

Figure P

The observation that more robust public roles in health care financing are associated with more success in restraining costs lies behind much of the recent political enthusiasm expressed for single-payer proposals. The impulse that a large public role can ameliorate many ills is clearly correct. One way to start a process leading to a much larger role is fairly straightforward: add a “public option” to the health care exchanges that were established under the ACA. This public option would allow households the choice to enroll in a public plan (comparable to Medicare) instead of a private plan. They would pay actuarially fair premiums (with the income-related ACA premium subsidies in force) and receive insurance coverage. The ACA architects largely thought that a public option was always meant to be included (a public option, for example, was part of the bill that passed out of the House of Representatives). The Congressional Budget Office has estimated that including a public option would save roughly $140 billion in federal spending over a decade, due to the downward pressure on premium prices it would exert (CBO 2016). Further, introducing a public option would increase competition in many counties around the United States where private insurers have largely abandoned the ACA exchanges. In 2017, 47 percent of counties had fewer than three insurers offering plans in the ACA exchanges (CMS 2018). This is a prime example of health insurance markets consolidating and robbing consumers of the potential benefits of competition. Adding a public option to the ACA exchanges would go a long way toward remedying the lack of competition, and if it attracted enough enrollees, it would be able to use its market power to bargain to keep payments to providers from growing excessively fast.

Besides providing a public option for the insurance exchanges set up by the ACA, another straightforward way to introduce a more robust public-sector involvement in health care would be to expand eligibility for the existing large public programs—Medicare and Medicaid. Allowing Americans 55 and over to “buy in” to Medicare at actuarially fair premium rates is an idea with a long pedigree. This would not only expand Medicare’s enrollee pool and boost its bargaining power with providers, but it would also provide a crucial window of health security at a time in Americans’ lives when they are often most vulnerable to an unexpected employment shock leading them to lose access to affordable health care. Similarly, one could expand eligibility for Medicaid. Currently, this eligibility requires household incomes of less than 138 percent of the federal poverty line (FPL), but there’s nothing particularly magical about this threshold—there’s no particular reason why this could not be raised to 200 percent of the FPL. Essentially, policymakers eager to claim the policy virtues of single-payer systems should seize on any chance they can get to expand existing public programs, even if this must be done incrementally.

Adopt “all-payer rates” to help private payers draft in the bargaining power of Medicare

It has often been observed that the large public programs, and Medicare in particular, can serve to set pricing benchmarks that private insurers can use in their own bargaining with providers. However, even if Medicare reimbursement rates provide useful information to private insurers, this latter group’s success in achieving the same bargain Medicare strikes with providers will depend on raw market power. As a recent landmark study of the private insurance market (Cooper et al. 2018) put it, “The results paint a consistent picture of bargaining power. At least descriptively, when hospital markets are concentrated (and/or insurer markets are fragmented), hospital prices are higher and hospitals are able to obtain contracts that shift more risk on to insurers.”

These findings suggest a clear policy recommendation: Besides having large public programs with pricing clout cover more Americans directly, we can use policy to allow private payers to draft in the price-setting power of public plans.

One obvious way to help the pricing benchmarks set by Medicare apply more tightly to all private payers (even those not large enough to wield considerable bargaining power on their own) is to establish all-payer rates. All-payer rates, much like they sound, simply require that health care providers charge the same price for a given procedure regardless of who is paying for it. Wide variance in rates charged for the same procedure—even for the same procedure undertaken in the same hospital in the same month and year—is a notable feature of the American health care market (Cooper et al. 2018). It is hard to see how this variance helps efficiency, and careful research has concluded that it is largely the outcome of differential bargaining power wielded by different health care payers.

Setting all-payer rates effectively lets the payer with the most bargaining power set rates for everybody. It therefore replicates much of the monopsony power of large public systems. Currently, Maryland is the only state with all-payer rates, and they apply only to the hospital sector. Murray (2009) has documented that hospital prices in Maryland have risen far more slowly than in other states in recent decades, indicating some beneficial effect of all-payer rates.32

Erode the intellectual monopoly of key health care sectors (e.g., pharmaceuticals)

A growing share of health costs in recent decades is accounted for by increased spending on pharmaceuticals. These drugs are generally developed and tested by private companies that are given intellectual property rights, which in turn give them substantial monopoly pricing power.33 As shown in Figure M, the price of drugs in the United States is often orders of magnitude higher than in other advanced countries. This suggests strongly that other countries—again, often with the help of more robust public roles in health financing—use their purchasing power to cut down the pharmaceutical company markups on drugs. Strikingly, Medicare was explicitly barred from effectively negotiating for lower drug prices when the 2003 law that expanded Medicare coverage to include pharmaceuticals was passed.34 Affirming Medicare’s responsibility to strike better bargains for taxpayers when purchasing from pharmaceutical companies should be seen as low-hanging fruit in the struggle to control costs. Baker (2013), for example, notes that having Medicare bargain for lower drug prices could save $40–60 billion annually.

Baker (2008) would go even further than simply having the government bargain for lower prices when serving as a direct purchaser. He suggests having clinical trials for new drugs be publicly financed. He notes the many economic conflicts of interest that arise when drug companies themselves undertake and report on the results of clinical drug trials. There are obvious incentives to overstate a drug’s effectiveness and understate any risks. Baker recommends that the cost of setting up publicly financed drug trials be recouped (and then some) by having the intellectual property resulting from new discoveries be placed in the public domain. This would result in far lower prices charged for pharmaceuticals.

Finally, the enormous price differences across countries (even those that share a border) for the exact same brand of drug suggests one obvious potential strategy for reducing drug costs in the United States: Allow these drugs to be bought in other countries and reimported into the United States. Economists for decades have evangelized about the benefits of free trade and have been nearly unanimous in advocating for trade treaties like the North American Free Trade Agreement (NAFTA) that cut tariffs for apparel and textiles and other goods. Yet these same trade treaties have almost always forbidden such drug reimportation and even demanded extension of U.S. levels of intellectual property protections to trading partners as a precondition for access to the U.S. market. This is a truly odd oversight on the part of the profession—free trade in pharmaceuticals would actually solve a pressing economic pressure on the budgets of millions of American families.

Increase antitrust scrutiny of consolidation in health care markets

We have noted many times in this report that providers of health care goods and services have substantial market power. The most intuitive way sellers in a market can wield power is when the market is relatively concentrated, with too few sellers to provide meaningful price competition. This lack of competition is an obvious feature of those corners of the health care market that are explicitly protected by patents (pharmaceuticals and medical instruments, mostly), as described above.

However, recent decades have seen another trend leading to degraded competition in a crucial sector of the American health system: consolidation of hospitals. This consolidation has been both horizontal and vertical. Horizontally, the number of hospitals (or hospital companies) in any given region is falling on average over time, and this fall has restricted price competition. Vertically, hospitals have affiliated with other providers (often networks of physicians) to extend pricing power.

The year 2017 saw a record number of hospital mergers and acquisitions (115), and 2018 saw 30 such mergers and acquisitions in the first quarter alone. This extends a pronounced trend in hospital consolidation over the past decade. In 2007, 53 percent of community hospitals belonged to a larger system. By 2017, the share was over two-thirds (66.8 percent). Similarly, between 2009 and 2015, the share of hospital-employed physicians grew from 40 to 48 percent.35

Research indicates that hospital mergers increase the price charged for services by 10–17 percent. In already consolidated markets, mergers between close competitors can raise prices by as much as 50 percent. Other research indicates that when hospitals acquire physician practices, prices for physican services increase by 14 percent.

A growing literature has documented potential increases in market concentration across a range of sectors and geographies. This wider literature makes a powerful case that enhanced antitrust protection should be a key priority of economic policymakers in coming years. It is hard to imagine a sector besides health care where this is a more pressing priority.

Conclusion

Nobody who was clear-eyed about the deep problems in the American health system in 2009 thought that the Affordable Care Act should be the last ambitious reform undertaken. While the ACA was a major step forward in addressing some key problems—like the lack of insurance coverage among a large share of the population—it was clearly insufficient to serve as a comprehensive cure for what ailed the American health system. The clearest goal for post-ACA policymakers is reining in the fast-rising costs of American health care without sacrificing households’ access to needed medical care.

American health care is singularly expensive among industrialized nations, and other nations with a stronger public role in health provision spend far less while achieving at least comparable (and often superior) health outcomes. This insight is what lies behind the considerable political desire to have the United States adopt a “single-payer” health care financing program. Single-payer is clearly a worthy policy goal, but moving toward it could be a long process, and it would take some time before full implementation of such a system could be achieved. Luckily, however, many of the key policy provisions that allow more robust public systems to achieve greater cost containment without sacrificing quality can be adopted quite early in any march toward single-payer. These cost-containment strategies would not only make a large public role for health care more plausible, they would also supply much-needed relief in the short run to the private American health care system, particularly the system of employer-provided health care.

Crucially, the class of reforms highlighted in this paper will enable many of the virtues inherent in a single-payer system to be realized without radically disrupting the ESI system that currently covers the majority of Americans. These households with ESI plans have shown themselves to be (understandably) quite leery about major reforms that threaten to disrupt this system before a proven alternative is demonstrated. As this report shows, however, there are significant reforms we can enact that would both pave the way for single-payer reform in the long run and, in the short run, provide enormous benefits for those families who currently have ESI coverage.

Acknowledgments

The author gratefully acknowledges the help of Elise Gould, Jessica Schieder, and Julia Wolfe in preparing the report, and Zane Mokhiber for help with figures and tables. I also thank Krista Faries and Lora Engdahl for editing assistance. Large portions of the section detailing the dangers of policy measures to attack utilization are lifted from Gould 2013, which in turn draws heavily on previous joint work.

About the author

Josh Bivens joined the Economic Policy Institute in 2002 and is currently EPI’s director of research. His primary areas of research include mac­roeconomics, social insurance, and globalization. He has authored or co-authored three books (including The State of Working America, 12th Edition) while working at EPI, edited another, and has written numerous research papers, including for academic journals. He appears often in media outlets to offer eco­nomic commentary and has testified several times before the U.S. Congress. He earned his Ph.D. from The New School for Social Research.

Appendix A

Recent cost slowdown is welcome but should not breed complacency

While the forecast of future income pressure stemming from rising health costs implied by Figure I is disquieting, it is perhaps more hopeful to note that the rate of excess cost growth has dropped significantly over the past decade (as can be seen in Figure C). The precise sources of this drop in excess cost growth remains not well understood.36 There is some evidence that the Great Recession had something to do with it. The recession saw enormous drops in spending on all goods and services economywide, so it is perhaps not shocking that this included the health care sector as well.

Some have conjectured that the ACA had something to do with it.37 The ACA created an Independent Payments Advisory Board (IPAB), a board that was empowered to change provider reimbursements from the public insurance programs if excess health care cost growth continued. The ACA also provided funding for experiments in payment reforms for the public insurance programs meant to better peg value and money spent on health care. A key thrust of those reforms was moving the public insurance systems away from payment models characterized by “fee for service” (FFS), where each medical intervention for a patient is billed and reimbursed by a provider. FFS carries an obvious incentive to provide more medical interventions for that patient. To break this incentive, some proposed payment reforms reimburse diagnoses and medical management rather than discrete procedures.

One key example of the policy thrust toward moving away from FFS reimbursement and toward “paying for quality” was an effort to reduce readmissions to hospitals following treatment. Hospital readmissions are too often a sign that care has been suboptimal in the first contact between patient and hospital. Readmissions are also quite costly in resource terms. But from the strict perspective of hospitals and doctors being paid on a fee-for-service model, they represent income gains. Efforts have been made to break this perverse incentive by penalizing readmissions or not reimbursing for multiple admissions related to a single diagnosis. The ACA specifically created a Hospital Readmission Reduction Program (HRRP) in 2012. The HRRP financially penalizes hospitals that have higher-than-expected readmission rates for a range of illnesses.38

It has been speculated that, in anticipation of IPAB decisions and widespread adoption of payment reforms, providers undertook cost-saving modifications of their own practices.

Whether these speculations are true or not, it seems clear that the recent slowdown in excess health care cost growth is not fully understood, and there is no guarantee that it rests on solid ground. Worse, some of the policy reforms that may have contributed to the recent slowdown have been significantly weakened. The IPAB was abolished as part of the Republican tax cut passed at the end of 2017, and the Trump administration Department of Health and Human Services seems far less interested in cost-saving reforms than its predecessor. If anticipation of the effect of IPAB and payment reform really was driving efficiency-seeking behavior of medical providers over the past decade, the removal of these cost-disciplining institutions could threaten to unleash faster excess cost growth in coming years.

In short, while we should not take the more dire forecasts embedded in Figure I as set in stone and immovable, nor should we take recent years’ slowdown in health costs as inevitable and obviously durable. Instead, policymakers should realize that health care costs are starting from a very high base, so any excess cost growth in coming decades will do substantial damage to possibilities for nonhealth consumption of goods and services. This argues strongly for noncomplacency and the need for aggressive measures to lock in the recent decade’s excess cost slowdown and to build on it.

Appendix B

How rising ESI costs pressure wages across the distribution

Figure G provides evidence on how wages overall (and wages for the bottom 90 percent) have been potentially crowded out by the rising cost of ESI premiums. Appendix Table B1 gives some more texture to this discussion by showing how much rising employer contributions to ESI premiums affected workers at different wage fifths.

The first set of rows (“Hourly wage, nominal”) shows the median hourly wage within each wage fifth for three separate years: 1979, 2007, and 2016. In 2016, this ranges from $9.54 for the lowest fifth to $44.79 for the highest fifth. The second set of rows (“ESI coverage rate”) shows the share of workers in each fifth who receive ESI coverage through their own job. These rows show that in 2016, 53.1 percent of workers overall received ESI coverage from their own job, down from 69.0 percent in 1979. The next set of rows (“Cost of employer contributions”) show an estimate of the average cost to an employer of providing ESI coverage, expressed as a share of the median wage in each fifth. These rows show that in 1979, employer contributions for the average ESI plan were equal to 16.8 percent of the median wage for the bottom fifth and 4.7 percent of the median wage of the top fifth. The next set of rows (“Hourly wages plus employer contribution”) show the sum of the hourly wage plus employer contributions to ESI premiums for an employee at the median of each fifth, accounting for the fact that not all workers receive this ESI coverage. The next set of rows (“Hourly wages plus employer contributions, counterfactual”) provides this same measure but holds the cost of providing the average ESI plan constant at its 1979 share of median hourly wages in each fifth. Finally, the last two sets of rows show the difference between the actual measure of hourly wages plus employer contributions to ESI per wage fifth and the counterfactual measure (by dollar amount in the first set and by percent of wages in the second set). This difference shows the potential crowd-out of hourly wages by the rising cost of ESI premiums. By 2016, this difference was $2.15 on average, with the crowd-out ranging from $0.99 per hour for the lowest wage fifth to $2.47 for the fourth fifth.39

Appendix Table B1

It should be noted that these calculations may understate the damage that rising health care costs have done to workers in the bottom two-fifths of the wage distribution. We should be clear that this damage has been substantial, for a number of reasons. First, the crowd-out of wages from rising ESI premiums has actually been larger than average for the bottom two-fifths, measured in percentage terms (as seen in the last row of the table). Second, while this chart shows the crowd-out of wages taking ESI coverage erosion into account, for those workers who continue to receive ESI, the wage crowd-out stemming from rising ESI premiums (not shown here) is much higher in percentage terms for workers in the bottom two-fifths than for other workers, for the simple reason that ESI premiums constitute a much higher share of these workers’ wages. For the same reason, conditional upon receipt of ESI, the benefits of the tax exclusion of ESI premiums are also greatest for lower-wage workers.40 Finally, the table shows clearly that ESI coverage has eroded most dramatically for workers in the bottom two-fifths of the wage distribution (as seen in the second set of rows, “ESI coverage rate”). This erosion is surely related to the fact that growth in ESI premiums relative to these workers’ wages has been extreme. In a real sense, the stakes for these workers in slowing health care costs are the greatest: To keep coverage in the face of rising costs, they must suffer the largest wage declines or else have coverage become so completely unaffordable that they must go without it.

Appendix C

American health care today is expensive relative to its international peers—but have prices in the U.S. actually grown faster than prices in peer countries?

Figure J provides a look at American health care prices over time, and Figure L provides comparisons of the U.S.’s and other countries’ health prices at a single point in time. Unfortunately, there is no reliable set of comparative price indices across countries that would allow one to make easy comparisons about the pace of health care price growth.41

We can, however, take a suggestive look at one particular slice of health care—hospitalization. The Organisation for Economic Co-operation and Development has a rich data set (OECD Health Statistics, or OHS henceforth) on health care financing and utilization across countries (but again, unfortunately, no cross-country set of health care deflators over a long period of time). For hospitalizations, the OHS provides national spending per capita as well as volume-based measures of utilization—the number of hospital discharges normalized by population size, as well as the average length of stay in hospitals. By looking at the trend in purely volume-based hospitalizations and comparing it with the rise in spending (which is the product of volume and prices), one can infer a rough trend for the price of hospitalizations. If, for example, a country has seen a 10 percent increase in hospital spending per capita but only a 5 percent increase in the volume of hospitalizations per capita, this implies that hospital prices have likely risen by 5 percent over that time as well.

Appendix Table C1 shows the trends in hospital spending and trends in hospital utilization for a range of OECD countries. Unfortunately, the United States does not show up in the OHS for a key measure of hospital utilization—hospital discharges. But independent sources do provide such a measure for the U.S. Potentially reassuringly, the trend from the independent U.S. sources displays the same nearly universal downward slope experienced by other OECD countries in recent decades.

Appendix Table C1

Taking the simple difference between the average annual growth rate of hospital spending (the second column of the table) and the average growth rate of hospital utilization (the first column) provides our inferred measured of hospital prices (the third column). Finally, to account for differences in overall price growth between countries, we subtract overall price inflation (the fourth column) from the constructed measure of hospital price to get a measure of “excess hospital price growth.” This last measure shows that this excess price growth in the United States for hospital services was indeed notably faster than the OECD average, with only three of 21 countries seeing faster excess price growth over this time. Most fundamentally, this table shows that hospital spending in the U.S. is quite high relative to OECD peers but hospital utilization does not appear to be, given that hospital utilization rates have been declining in the U.S. at a faster rate than in most other countries.

Endnotes

1. The degree to which the United States is an outlier in costs is well established, and later sections of this report provide the documentation. The middling-at-best performance of the United States health care system from an international perspective is almost as well established, with Sawyer and Gonzales (2018) providing a good recent rundown of the evidence.

2. See Center on Budget and Policy Priorities 2018 for an excellent overview of the administrative undermining of the ACA.

3. “Single-payer” is not a particularly specific term. It is often used interchangeably with “Medicare for All,” but the current American Medicare system allows private payers in and so is not, strictly speaking, a single-payer system. Further, some have interpreted “single-payer” to mean that no individual contributions to health care costs (e.g., deductibles or copays) are required. But no other country, including those often described as having a “single-payer” system, has a public insurance plan that pays for 100 percent of medical costs. In the end, “single-payer” should generally be taken to mean universal coverage that is achieved with a large public plan that covers a large portion of health care costs.

4. See Barnett and Berchick 2017 for information on sources of insurance coverage.

5. Gould 2013a documents this rapid erosion in ESI coverage following the 2001 recession.

6. Family plans include all plans that provide coverage for more than one person. KFF (2017) averages across family plans to yield an overall family plan cost.

7. For this argument, and some evidence validating the long-run trade-off between health insurance premiums and earnings, see Baicker and Chandra 2006.

8. The percentage-point difference between the 1999 share and the 2016 single premium share of earnings (8.6 ppt.), shown in the last column of Table 1, corresponds to the percent boost in annual pay (8.6 percent) that could have occurred had the premium stayed constant as a share of earnings. If this correspondence is not obvious, another way to calculate the percentage boost in annual pay is to assume that the single premium’s share of annual earnings in 2016 is still 9.7 percent, as it was in 1999—this makes the dollar amount of the 2016 premium $3,403 instead of $6,435, or $3,032 less, which represents an implied boost to pay of 8.6 percent ($3,032/$35,083) if that amount is redirected into cash wages.

9. This is indicated by the 26.1 percentage-point difference shown in the last column. If we assume the 2016 family premium remains at 25.6 percent of annual earnings, as in 1999, then the dollar amount of the 2016 premium becomes $8,981 instead of $18,142, for a potential boost in pay of $9,161, or 26.1 percent ($9,161/$35,083).

10. For single coverage, take the 8.6 percent increase in earnings that could have occurred had ESI premiums remained constant as a share of annual earnings, and divide by 54.8 percent to get the 15.7 percent figure. For family coverage, the relevant numbers are 26.1 percent and 54.8 percent.

11. The Kaiser Family Foundation Employer Health Benefits Survey (KFF 2017) finds that the composition of out-of-pocket costs changed dramatically over this period. Copayments (fixed costs associated with each visit to a provider), for example, fell 37.8 percent. Coinsurance (out-of-pocket costs that are charged as a share of the total provider cost) rose by 67.1 percent. Deductibles (out-of-pocket costs that fully cover provider costs up to a threshold above which insurance payments kick in) rose most rapidly of all, by over 176 percent.

12. Potential GDP is used instead of actual GDP in measures of excess health care cost growth because one doesn’t want the measure of excess health cost growth to be infected by economic recessions and booms. For example, measured relative to actual GDP growth, excess costs would have skyrocketed during the Great Recession, yet nobody would think this was a meaningful change.

13. Some of this rapid slowdown in excess cost growth per enrollee relative to growth per capita is likely compositional: Many of those who were newly insured following the implementation of the ACA were likely relatively healthy and cheap to cover, pulling down average costs.

14. Sheiner (2014a) provides a good overview of cost trends and a good discussion about how to think about the recent slowdown in health care cost growth, noting that “…it seems premature to either declare a turning point or to decide that nothing has changed. There remains much uncertainty about the likely trajectory of future health spending.”

15. The 11 countries are Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States.

16. Mortality amenable to health care is a measure of population health that estimates deaths that are potentially preventable with timely and effective health care and hence attempts to separate mortality changes due to influences outside the control of health care changes.

17. Again, this presumes that even employer contributions to rising ESI costs are, in the long run, financed by slower potential growth of cash wages. Over the long run, this seems like a safe assumption.

18. The virtue of including this measure, as well as those from the previous section, is that the measures in Table 1 and Figure A essentially show the potential crowd-out of cash wages stemming from rising ESI premiums conditional on workers receiving ESI. It is possible that some employers respond to rising ESI premiums by no longer providing coverage, and this could reduce the crowd-out of cash wages systemwide. The NIPA data examined in this section essentially show the unconditional rise in total compensation accounted for by rising health costs—including the potential effect of employers reducing coverage.

19. The overall number is derived by multiplying the change in the share of total compensation accounted for by employer contributions to ESI premiums since 1979 by total compensation as measured by Bureau of Economic Analysis (BEA) NIPA Table 1.10. For the bottom 90 percent, we multiply the change in the share of total compensation accounted for by employer contribution to ESI premiums by the change in the bottom 90 percent’s total compensation, which is the product of total compensation from BEA NIPA Table 1.10 and the measure of the bottom 90 percent’s share of total compensation provided in CBO 2018c.

20. This fact is highlighted most usefully in some earlier versions of the Congressional Budget Office’s Long-Term Budget Outlook (CBO 2007).

21. See Aizcorbe et al. 2013 for a good overview of this argument.

22. One might argue that because the United States is starting these comparisons from a higher base ratio of health spending relative to GDP, a larger percentage-point change does not necessarily imply less success in constraining the growth of costs. Highlighting the average annual percent change in the ratio accounts for the higher base level of the United States.

23. See Sawyer and Gonzales 2018 for U.S. outcomes in comparative perspective.

24. See Papanicolas, Woskie, and Jha 2018 for more on cross-country comparisons of utilization measures.

25. See Davis 2004 for a good overview of the theory and evidence regarding consumer-directed health plans.

26. For a critical review of the effect of the excise tax on expensive health plans, see Bivens and Gould 2015 and Gould 2013b.

27. To be fair, many proponents of increased cost sharing for the first dollar of health spending would readily concede that tens of millions of Americans are underinsured as well.

28. The “theory of the second best” says that if markets are characterized by even one deviation from the perfectly competitive optimum, then it is possible that welfare improvements may happen only by moving further away from this competitive optimum, not closer.

29. Further cementing the need for future reforms, of course, is the intentional campaign to weaken the ACA undertaken by Republicans in Congress, the White House, and the courts since the day it was passed. The combined effect of these campaigns have succeeded in significantly reducing potential enrollment in both Medicaid and the ACA exchanges.

30. Medicare also provides coverage to some Americans under age 65 who qualify due to a disability.

31. This number is derived by taking the cost of a family ESI plan today, as estimated by KFF (2017), and backcasting its cost growth from the private health insurance costs in Figure P. Once its 1970 value is derived from this backcast, we then let it follow the cost path taken by Medicare costs and compare this counterfactual 2016 cost with its actual cost.

32. At the same time, overall hospital utilization in Maryland over the same period has risen significantly faster than in other states. This could be random luck, or it could be providers with market power using another margin of this power—increasing recommended medical utilization—to preserve revenue in the face of price controls. Finally, it could be simply that demand for hospital services is relatively price elastic, and the subdued price growth in Maryland has moved potential patients down the demand curve relative to other states, leading to higher rates of utilization.

33. It should be noted that much of this argument applies to medical devices as well as to pharmaceuticals. Payments for devices, however, are harder to separate in the data than payments for pharmaceuticals, so the data do not provide as clean a basis for how much we spend on devices.

34. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 117 Stat. 2066.

35. Statistics on consolidation taken from congressional testimony of Martin Gaynor (2018).

36. Again, Sheiner (2014a) remains a good documentation of competing explanations.

37. Cutler and Sahni (2013) provide the most forceful argument that the ACA should be expected to have had relatively immediate effects in restraining cost growth.

38. These hospital readmission rates were risk adjusted to account for different patient populations handled by different hospitals. McIlvennan, Eapen, and Allen (2015) provide an overview of the HRRP.

39. These estimates rely on the assumption that covered workers face the same premium prices regardless of which wage fifth they are in. This could certainly be incorrect, but it is not obvious which way the bias would run. On the one hand, low-wage workers might be given substandard plans that provide less protection and are hence cheaper. On the other hand, smaller employers tend to pay lower wages yet face significantly higher costs for health insurance.

40. See White 2017 for a detailed discussion of these points.

41. The OECD Main Economic Indicators does provide data on the consumer price index for medical care, but the data are too spotty for too many countries to provide a good comparison. For example, the data for the United States in these statistics only begin in 2004.

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Since the 2010 election of Governor Scott Walker in Wisconsin and Governor Mark Dayton in Minnesota, lawmakers in these two neighboring states have enacted vastly different policy agendas. Governor Walker and the Wisconsin state legislature have pursued a highly conservative agenda centered on cutting taxes, shrinking government, and weakening unions. In contrast, Minnesota under Governor Dayton has enacted a slate of progressive priorities: raising the minimum wage, strengthening safety net programs and labor standards, and boosting public investments in infrastructure and education, financed through higher taxes (largely on the wealthy).

Because of the proximity and many similarities of these two states, comparing economic performance in the Badger State (WI) versus the Gopher State (MN) provides a compelling case study for assessing which agenda leads to better outcomes for working people and their families. Now, seven years removed from when each governor took office, there is ample data to assess which state’s economy—and by extension, which set of policies—delivered more for the welfare of its residents. The results could not be more clear: by virtually every available measure, Minnesota’s recovery has outperformed Wisconsin’s.

The following report describes how Minnesota’s and Wisconsin’s economies have performed since 2010 on a host of key dimensions, and discusses the policy decisions that influenced or drove those outcomes.

Key findings include:

• Job growth since December 2010 has been markedly stronger in Minnesota than Wisconsin, with Minnesota experiencing 11.0 percent growth in total nonfarm employment, compared with only 7.9 percent growth in Wisconsin. Minnesota’s job growth was better than Wisconsin’s in the overall private sector (12.5 percent vs. 9.7 percent) and in higher-wage industries, such as construction (38.6 percent vs. 26.0 percent) and education and health care (17.3 percent vs. 11.0 percent).
• From 2010 to 2017, wages grew faster in Minnesota than in Wisconsin at every decile in the wage distribution. Low-wage workers experienced much stronger growth in Minnesota than Wisconsin, with inflation-adjusted wages at the 10th and 20th percentile rising by 8.6 percent and 9.7 percent, respectively, in Minnesota vs. 6.3 percent and 6.4 percent in Wisconsin.
• Gender wage gaps also shrank more in Minnesota than in Wisconsin. From 2010 to 2017, women’s median wage as a share of men’s median wage rose by 3.0 percentage points in Minnesota, and by 1.5 percentage points in Wisconsin.
• Median household income in Minnesota grew by 7.2 percent from 2010 to 2016. In Wisconsin, it grew by 5.1 percent over the same period. Median family income exhibited a similar pattern, growing 8.5 percent in Minnesota compared with 6.4 percent in Wisconsin.
• Minnesota made greater progress than Wisconsin in reducing overall poverty, child poverty, and poverty as measured under the Census Bureau’s Supplemental Poverty Measure. As of 2016, the overall poverty rate in Wisconsin as measured in the American Community Survey (11.8 percent) was still roughly as high as the poverty rate in Minnesota at its peak in the wake of the Great Recession (11.9 percent, in 2011).
• Minnesota residents were more likely to have health insurance than their counterparts in Wisconsin, with stronger insurance take-up of both public and private health insurance since 2010.
• From 2010 to 2017, Minnesota has had stronger overall economic growth (12.8 percent vs. 10.1 percent), stronger growth per worker (3.4 percent vs. 2.7 percent), and stronger population growth (5.1 percent vs. 1.9 percent) than Wisconsin. In fact, over the whole period—as well as in the most recent year—more people have been moving out of Wisconsin to other states than have been moving in from elsewhere in the U.S. The same is not true of Minnesota.

Introduction

At the time of the November 2010 elections, most states were still reeling from the economic devastation caused by the Great Recession. Although the recession had officially ended in 2009, the low point of the labor market was in 2010—the country continued losing jobs until March of that year. Thus, when newly elected Governors Scott Walker of Wisconsin and Mark Dayton of Minnesota took office in January 2011, the economic policy agendas that each pursued would largely define their respective states’ recoveries.

Wisconsin and Minnesota offer a particularly useful case study for assessing the merits of two very different governing philosophies. As Markusen (2015), Caldwell (2015), Aleem (2015), and others have pointed out, the two states’ geographic proximity—as well as their similarities in population, demographics, culture, and industry composition—make comparing outcomes in Wisconsin versus Minnesota a useful natural experiment for assessing how state policy is affecting economic outcomes and residents’ welfare. Though one must be careful not to attribute too much of a state’s economic performance to the policy choices of state lawmakers, there are areas where governors and state legislatures can significantly influence outcomes and set the direction for medium-to-longer-term trends.

Throughout the course of their terms in office, Governors Walker and Dayton have pursued dramatically divergent agendas. Governor Walker’s policies have been typical of the most conservative state agendas: large tax cuts for businesses and higher-income households, deregulation, huge cuts in public financing of everything from K−12 and higher education to green energy programs and aid to the poor, weakening labor standards and cutting safety net programs, shifting public funding to the private sector, undermining workers’ ability to form unions, and rejecting federal dollars to invest in infrastructure or expand Medicaid (Stein, Marley, and Bergquist 2011; Stein and Boulton 2013; Umhoefer 2012; Stein 2012; Stein 2013; COWS 2011; Associated Press 2012). Walker and his allies in the legislature also brazenly gutted the state’s public-sector unions, severely limiting their ability to negotiate new contracts or collect dues, and establishing onerous requirements for annual recertification (Davey 2011).

In contrast, Governor Dayton’s policies embraced the role of government in regulating markets, improving the welfare of workers and their families, and boosting private-sector growth through public-sector investment. Although divided government at the outset of his tenure prevented Dayton from implementing the entirety of his agenda, Minnesota was soon at the forefront of progressive state policymaking. The state raised its minimum wage and set it to be automatically adjusted for inflation each year (Bierschbach 2014). Minnesota raised taxes, largely on the wealthy, and used the additional funds to finance public investments in infrastructure, education, and aid to low-income families (Helgeson, Brooks, and Stassen-Berger 2013; Dornfeld 2013; Caldwell 2015). The state expanded preschool and access to full-day kindergarten. Governor Dayton’s government authorized the unionization of new groups of state-funded workers, expanded access to paid sick leave, strengthened the state’s unemployment insurance program, and was an early adopter of the Medicaid expansion under the Affordable Care Act (Markusen 2015; Caldwell 2015; League of Minnesota Cities 2011; Office of the Governor, Mark Dayton 2011). State lawmakers also enacted a pay equity law to combat gender pay disparities, legalized gay marriage, and made it easier to register to vote (Caldwell 2015; Markusen 2015).

The direct effects of the Minnesota reforms were unambiguously progressive—directing resources toward low- and moderate-income households and strengthening rules explicitly meant to boost these households’ economic leverage and bargaining power. The direct effects of the Wisconsin reforms were unambiguously regressive. Fiscal resources were transferred from low- and moderate-income residents to richer ones, and rules that buttressed the economic leverage of low- and moderate-wage workers were weakened. There is very little controversy about this characterization of the respective reforms. For the Wisconsin policy path to actually deliver better economic outcomes for most Wisconsinites, the indirect ripple effects of these policy changes would have to be strong indeed. Tax cuts to rich households would have to trickle down to poorer households in the form of faster economic growth resulting in faster job growth and eventually wage growth. Similarly, union-busting would have to lead to better private-sector job growth. Only if and when business investment and job growth became strong enough to significantly improve the state labor market would low- and middle-income households see much benefit from these reforms. Thus, any failure of the Wisconsin policy changes to spur unambiguously better economic performance and job growth should be viewed as particularly glaring.

Today, both states have reached a point of relative economic health—yet, as the following sections show, not all recoveries are created equal. On a multitude of key measures, Minnesota’s economic performance over the past seven years has been markedly better than that of its neighbor to the east. On virtually every metric, workers and families in Minnesota are better off than their counterparts in Wisconsin—and the decisions of state lawmakers have been instrumental in driving many of those differences.

The following sections compare a host of key statistics describing economic conditions and the welfare of residents in the two states.

Union density

In assessing the state-policy-driven economic outcomes of working people in Wisconsin compared with any other state since 2010, the discussion must begin with what happened to Wisconsin’s unions. In June of 2011, after months of protests, the Republican-controlled state legislature passed, and Governor Walker signed, the Wisconsin Budget Repair Bill, also known as Act 10. Act 10 took away all collective bargaining rights from state home health care workers, state family child care workers, state hospital employees, and all University of Wisconsin faculty and staff. It also restricted collective bargaining rights for all remaining state employees—except for law enforcement and firefighters—to only bargaining over wages, with wage increases statutorily capped at the rate of inflation. In addition, the bill eliminated automatic dues deduction for union members and required that all unions had to annually recertify through a majority vote of all members. Public-sector employees’ required contributions for health insurance and pensions were more than doubled, amounting to what was effectively an average 8.0 percent pay cut for affected state workers. The bill also made it easier for public agencies to fire union staff (COWS 2011; Davey and Greenhouse 2011).

In summary, although Act 10 was ostensibly a bill to balance the budget, it was designed to worsen job quality for the state’s public-sector workforce and to severely weaken the state’s public-sector unions (Stein and Marley 2012). Act 10 and subsequent state budgets made dramatic cuts in funding for K−12 education, funding for the University of Wisconsin system, funding for local governments, funding for regional and local transit systems, and funding for a variety of other public programs—leading to significant public-sector employment losses and reductions in public-sector pay (COWS 2011; Stein, Marley, and Bergquist 2011; Associated Press 2015).

Four years after Act 10 was passed, Walker signed a so-called right to work bill, which restricts the ability of both public- and private-sector unions to collect dues from all workers whose interests they represent (Johnson 2015). By making it legal for workers to access union benefits without paying dues, right to work laws hamstring unions’ ability to raise funding, consequently weakening their ability to support employees in bargaining for better wages, benefits, or working conditions (Gould and Kimball 2015).

As a result of these two laws, union membership in Wisconsin has fallen dramatically. From 2010 to 2017, the share of Wisconsin workers in unions fell by 5.9 percentage points from 14.2 percent to 8.3 percent—the largest decline in union membership of any state over that period. At the same time, union membership in Minnesota declined by 0.4 percentage points to 15.2 percent, the same share that Wisconsin had in 2009. Union membership fell nationally by 1.2 percentage points to 10.7 percent over the same period.1

Wisconsin’s rapidly declining rate of unionization and the large cuts made to its public sector have serious implications for the state’s short- and long-term economic performance. Governor Walker contended that his agenda of shrinking the public sector and reducing the power of unions would lead to stronger private-sector growth, which would ultimately lead to better economic outcomes for Wisconsin workers and their families (Davey 2011, 2015). Seven years later, there is no evidence to validate this claim.

Jobs

State policymakers’ ability to influence job creation is easy to overstate. National or regional macroeconomic factors—such as the level of domestic consumer demand, the exchange rate of the dollar, or natural resource prices—exert a large influence on state economic growth that is outside the control of state policymakers. Further, because state governments face sharp constraints (both legal and economic) on running fiscal deficits, their ability to push back against these broader trends with fiscal policy is limited. Nevertheless, states that raise taxes on wealthier households or businesses to finance public investments will see a “balanced budget multiplier” effect—i.e., the initial expenditure on such investments does spur some additional growth, even if that growth is partially offset by the higher taxes needed to finance them. And if these public investments create favorable conditions for private economic development, over the medium term they can add up to sizable job impacts.

During his gubernatorial campaign, Scott Walker claimed that his policy agenda would create 250,000 new jobs in Wisconsin by the end of his first term in office (Associated Press 2011; Davey 2011). After taking office, the governor declared Wisconsin “open for business” and began implementing his agenda of deregulation, cuts to the public sector, and large tax cuts—with tax cuts for small businesses as well as cuts on capital gains taxes and individual income taxes (New Richmond News 2011). In Walker’s first term, Wisconsin cut taxes by $2 billion (Wisconsin Budget Project 2011; Stein 2013; Hovorka 2017). Nevertheless, the state did not come anywhere close to meeting Walker’s professed employment targets. In fact, as Walker nears the end of his second term, the state still has not reached the governor’s campaign goal.

Table 1

Table 1 shows that Minnesota has had stronger job growth than Wisconsin since both governors took office. From December 2010 to December 2017, Wisconsin added 216,800 jobs—an increase of 7.9 percent. In contrast, Minnesota’s job growth from December 2010 to December 2017 was 11.0 percent, or a total of 292,100 jobs.

Wisconsin had lost 141,200 jobs (or 4.9 percent of total nonfarm employment) from the start of the recession (December 2007) to December 2010. Thus, by December 2017, Wisconsin had about 75,600 (or 2.6 percent) more jobs than it did a decade prior. Minnesota’s losses in the recession were not quite as severe, with the state losing 118,000 jobs (or 4.3 percent of employment) from December 2007 to December 2010. By December 2017, Minnesota had 174,100 (or 6.3 percent) more jobs than it did prior to the recession.

For reference, Table 1 also shows the percent job changes for the U.S. as whole.

There were also important differences in the composition of job changes between the two states, as shown in the selected industries displayed in Table 1. (Appendix Table A1 shows job statistics for all major industry categories.) The types of jobs that Minnesota has added tend to be in higher-paying industries that typically have better-quality jobs. Wisconsin’s job growth has been more mixed, with a large portion of its jobs gained in lower-paying industries. Of the 292,100 jobs that Minnesota has added since 2010, more than a quarter have been in education and health care, which has grown by a combined 17.3 percent in Minnesota since 2010—that’s faster growth than the U.S. average of 16.1 percent over the same period. Education and health care has now grown from being 15.7 percent of total nonfarm employment in Minnesota before the recession to 18.4 percent of Minnesota’s employment by the end of 2017.

Minnesota’s fastest-growing industry—although not as big in absolute terms—was construction, which grew by a remarkable 38.6 percent since 2010. Total U.S. construction growth over the same period was 29.4 percent—meaning that Minnesota was adding construction jobs at over 1.3 times the pace of the U.S. as a whole.

The strong job growth in both of these major industries can be largely attributed to Governor Dayton and the Minnesota legislature’s decision to invest heavily in public infrastructure and health care. Early in his term, Dayton was able to secure a $479 million bonding bill for construction and infrastructure investments (League of Minnesota Cities 2011; Luhby 2011). His administration also accepted a $1.2 billion grant from the federal government to set up the state’s health care exchange and expand Medicaid under the Affordable Care Act (ACA), providing a large injection of funds to the state’s hospitals and health clinics (Office of the Governor, Mark Dayton 2011). Later in his tenure, Dayton and the legislature passed a tax increase of $2.1 billion—mostly in the form of higher income taxes for the wealthy and higher sales taxes on cigarettes—and used a large portion of the new revenue to increase funding for education, including expanding preschool and full-day kindergarten and raising teacher pay (Jacobs 2013).

In Wisconsin, the fastest-growing industry was also construction, but Wisconsin’s construction industry grew by only 26.0 percent over the same seven-year stretch—far slower than construction growth in Minnesota and slower than the U.S. average. In fact, as seen in Appendix Table A1, Wisconsin’s employment growth trailed Minnesota’s in most of the other major industry categories, including trade; transportation and utilities; financial activities; leisure and hospitality; and education and health care. Notably, Wisconsin’s education and health care industries grew by only 11.0 percent from 2010 to 2017, a period when the U.S. as a whole grew its education and health care workforce by 16.1 percent. This underperformance can be largely attributed to Governor Walker’s decisions to spurn federal health care dollars and not expand the state’s Medicaid program through the ACA.

The major industry groups where Wisconsin’s growth outpaced Minnesota’s were manufacturing (8.3 percent in Wisconsin vs. 7.4 percent in Minnesota), information (0.2 percent in Wisconsin vs. -7.5 percent in Minnesota), and other services (10.3 percent in Wisconsin vs. 0.9 percent in Minnesota). Manufacturing and information are generally higher-wage sectors, while other services is more mixed.2

Wisconsin did achieve Walker’s vision of shrinking the public sector. State government employment in Wisconsin has shrunk by 5.4 percent since the end of 2010.3 Combined with local government, public-sector employment (excluding federal government) in Wisconsin was 2.1 percent smaller at the end of 2017 than it was in the month prior to Walker’s inauguration. For comparison, the state and local government workforce in Minnesota grew by 3.5 percent over the same period.

Despite Walker’s rhetoric, there is little reason to believe shrinking the public sector should have led to faster private-sector growth. As Pollack (2009) explains, public-sector jobs support private-sector jobs. In fact, Pollack estimates that every $1 cut from state or local budgets leads to 41 cents being taken out of the private economy. It should not be surprising then that Minnesota bested Wisconsin not only in total nonfarm employment growth, but also in total private-sector job growth: Minnesota’s private sector grew by 12.5 percent, while Wisconsin’s increased by only 9.7 percent.

Unemployment

Job growth is obviously the key for reducing unemployment—thus it is not surprising that Minnesota was arguably more effective at reducing unemployment than Wisconsin was throughout the recovery. As shown in Figure A, Wisconsin reached a higher unemployment peak in the wake of the recession than Minnesota, hitting 9.2 percent in January 2010 compared with Minnesota’s peak of 8.1 percent in June 2009. By December 2010, the two states were down to 8.1 percent (Wisconsin) and 7.0 percent (Minnesota), and seven years later, both states have reached effectively the same unemployment rate, at 3.0 percent and 3.1 percent, respectively.

Figure A

However, the fact that they have arrived at the same place by December 2017 hides the fact that the path to get there was noticeably different. Minnesota was back at its pre-recession (December 2007) unemployment rate of 4.7 percent by September 2013, fewer than three years after Governor Dayton took office. In contrast, it took until December of 2014—15 months later—for Wisconsin to reach its pre-recession unemployment rate of 4.8 percent.

What this means on the ground is that for workers who lost their jobs in the recession, it likely took longer to find work in Wisconsin than it did in Minnesota. That added time out of the workforce can have lasting effects on workers’ long-term earnings and overall well-being (Irons 2009; Shierholz and Mishel 2011).

In fact, even though both states have low levels of unemployment today, those who are unemployed in Wisconsin are much more likely to be long-term unemployed than those in Minnesota. As shown in Figure B, in 2017 more than one in five unemployed workers in Wisconsin (22.4 percent) had been unemployed for at least 26 weeks—a percentage that has only modestly budged since 2014, when 27.6 percent of Wisconsin’s unemployed were long-term unemployed. In contrast, roughly 1 in 8 Minnesota unemployed (12.6 percent) were long-term unemployed—down from 28.4 percent in 2014.

Figure B

This slower path to recovery for Wisconsin’s workforce is obviously a function of the state’s weaker job growth. Yet at the same time, the Walker administration and the state’s Republican-led legislature also cut back on the safety net programs that could have stoked greater consumer demand and job growth, while giving unemployed workers more resources to find new jobs. In 2011, they enacted a one-week waiting period on unemployment insurance (UI), effectively cutting benefits for anyone seeking relief after losing their job. The state later weakened the standard by which an employer could deny a discharged employee from collecting unemployment and tied eligibility to drug testing (Carroll 2014). Lawmakers also ignored the recommendation of a state panel overseeing the UI system, which had urged lawmakers to take the necessary actions to obtain more federal funding for unemployment—funding that would have provided an additional 13 weeks of benefits to unemployed workers at no additional cost to the state (COWS 2011).

Minnesota, on the other hand, made a variety of tweaks to strengthen their state UI system, expanding eligibility for victims of domestic violence, changing the treatment of paid-out sick time or personal days so that access to UI benefits is not delayed, and making a number of additional changes to expand access to unemployment benefits (League of Minnesota Cities 2011). The state also expanded access to paid sick leave and unpaid family leave in 2014, thereby making it less likely that an illness would cause anyone to lose their job. Governor Dayton later expanded paid family leave for state employees, and city governments in Minneapolis and St. Paul passed ordinances providing paid sick days for all workers in the Twin Cities at businesses of at least a certain size beginning in 2017 (Brinkman 2013; Melo 2017).

Labor force participation

Access to unemployment insurance has been shown to keep unemployed workers searching for jobs rather than dropping out of the labor force altogether (Rothstein 2011). Similarly, having the ability to take time off for an illness, to care for a family member, or for the birth or adoption of a child—especially when that time off is paid—keeps more people connected to work, and is especially important for women (Appelbaum and Milkman 2011; Baum 2003). Minnesota’s more expansive unemployment benefits and paid sick, family, and medical leave policies have likely played a role in the state maintaining higher rates of labor force participation—particularly for women—than Wisconsin has had since the recession.

Minnesota’s overall labor force participation rate of 71.2 percent was the second highest in the country in 2017, behind North Dakota. The Gopher State also had the highest prime-age (workers ages 25–54) labor force participation rate in 2017 at 89.2 percent. Wisconsin’s overall and prime-age labor force participation rates were also near the top in the country, at 69.0 percent and 88.3 percent, respectively.

Where one can see most clearly the potential impact of the states’ differing policies on labor force participation is in looking at the trends by gender. As shown in Figure C, from 2010 to 2017, labor force participation for men in Minnesota fell slightly by 0.4 percentage points to 75.6 percent, while men’s labor force participation rose in Wisconsin by 0.4 percentage points to 73.7 percent.4 However, labor force participation for women held steady in Minnesota at 66.9 percent—the highest rate of any state in the country—while falling 1.2 percentage points in Wisconsin to 64.4 percent. While both states have relatively high rates of labor force participation for both men and women, the trends for women are better in Minnesota.

Figure C

Wages

Of course, having a job is not enough; for a state’s population to thrive, there have to be good jobs and rising wages. In the years leading up to the Great Recession, neither Minnesota nor Wisconsin had praiseworthy wage growth, and wages for the country as a whole were flat or falling during this period. As shown in Figure D1, from 2000 to 2007, the median wage in Minnesota actually fell, in inflation-adjusted terms, from a high of $20.51 in 2000 to $19.31 in 2007—an average loss of 0.8 percent per year. In contrast, the median wage in Wisconsin was rising modestly, going from $17.39 in 2000 to $17.87 by 2007—average annual growth of 0.4 percent above inflation. (Median wage values for all years are reported in Appendix Table A2.)

After Walker and Dayton assumed office, the trends flipped: wages in Minnesota have taken off, while in Wisconsin, they have stagnated. Figure D2 shows that, since 2010, growth at every point in the wage distribution has been stronger in Minnesota than in Wisconsin. From 2010 to 2017, the median wage in Minnesota cumulatively rose 2.4 percent over and above inflation—meaning that middle-wage workers in Minnesota have had a measurable improvement in their living standards. Minnesota’s median wage growth was also stronger than the 1.6 percent the U.S. experienced as a whole over the same period. In contrast, from 2010 to 2017, the median wage in Wisconsin rose only 0.3 percent after inflation. In other words, middle-wage workers in Wisconsin are treading water, barely hanging on to the same buying power they had in 2010.

Figure D

Undoubtedly, Wisconsin’s determined efforts to weaken unions have contributed to the state’s poor wage growth. Research has shown that states with higher union density tend to experience stronger wage growth, both for union and nonunion workers (Cooper and Mishel 2015; Gould and Kimball 2015). Unions provide bargaining power for workers to negotiate better pay increases—thus, when more workers are unionized, more of the workforce has greater bargaining power to negotiate better raises. At the same time, unions also raise wages for workers who are not in a union because nonunionized firms still have to compete with unionized firms to attract and retain staff (Rosenfeld, Denice, and Laird 2016). If the staff at a unionized competitor are being paid significantly better than the staff at a nonunionized firm, it puts pressure on the nonunionized firm to raise pay, lest they begin losing employees.

Notably, wage growth for the lowest-paid workers in Minnesota has been particularly strong since 2010. As shown in Figure D2, inflation-adjusted wages at the 10th and 20th percentiles in Minnesota rose by totals of 8.6 percent and 9.7 percent, respectively, from 2010 to 2017. Over the same period, wages for the bottom quintile of workers in Wisconsin also rose more than for middle-wage Wisconsinites, climbing just over 6 percent at both the 10th and 20th percentiles. The fact that both states experienced wage growth at the bottom of their wage distributions is likely the result of improvements in the labor market, which tend to have an outsized role in affecting pay for low-wage workers: As unemployment goes down, employers have to bid up wages in order to hire and retain staff. However, during this period, Minnesota also enacted a sizable increase in its minimum wage—raising the state wage floor from $7.25 in 2014 to $9.50 in 2017. This undoubtedly helped boost the pay of Minnesota’s low-wage workforce more substantially than what market forces alone accomplished in Wisconsin.

Wage trends by gender

Not only did Minnesota experience better overall wage growth than Wisconsin, the state also made greater progress in reducing gender pay inequities. As shown in Figure E, from 2010 to 2017, the inflation-adjusted median wage for women in Minnesota rose by 5.4 percent, compared with an increase of only 0.8 percent in Wisconsin. Men’s wages at the median rose by 1.6 percent in Minnesota, while the median wage for men in Wisconsin actually fell by 0.9 percent. As a consequence, the gender wage gap at the median in Minnesota shrunk by 3.0 percentage points, so that in 2017, the median woman worker in Minnesota was paid just less than 85.8 percent of the median-wage man. (Detailed wage data by gender are shown in Appendix Table A3.) In Wisconsin, the gender wage gap at the median also shrank a bit (1.5 percentage points) but this was driven more by men’s wages falling than by women’s wages rising. In 2017, the median wage for women in Wisconsin was 84.6 percent of the median wage of Wisconsin men.

Figure E

These trends were even more pronounced for low-wage workers, as seen in Appendix Table A3. Both women and men at the bottom of Minnesota’s wage distribution experienced stronger growth than their counterparts in Wisconsin. Women’s 10th-percentile wage in Minnesota rose by 9.7 percent and men’s rose 6.9 percent, after inflation. In Wisconsin, the 10th-percentile wage for women rose by 5.1 percent; for men, it rose by 6.0 percent. In Minnesota, because wages rose more strongly for women than men, the gender wage gap at the 10th percentile shrank by 2.3 percentage points. In contrast, the gender wage gap at the 10th percentile expanded slightly in Wisconsin, worsening existing inequities in the state’s low-wage workforce.

Household and family income

When more people can find work it typically raises household income, since more households are likely to have more earners. When hourly wages are rising on top of that, it leads to even stronger household income growth. So it should come as no surprise, then, that with both faster job growth and faster hourly wage growth, households in Minnesota had substantially stronger income growth than households in Wisconsin.

Table 2 shows changes in household and family incomes in Wisconsin and Minnesota from two different U.S. Census Bureau data sources. According to the American Community Survey (ACS), in 2010, median household income in Minnesota was $61,171 in 2016 dollars, 13.2 percent higher than the median household in Wisconsin, at $54,048. By 2016—the most recent year for which we have data—median household income had risen 7.2 percent in Minnesota, to $65,559, and 5.1 percent in Wisconsin, to $56,811. For comparison, national median household income as measured in the ACS rose by 4.4 percent over the same period. Minnesota’s median household in 2016 had income 15.5 percent higher than their counterparts in Wisconsin (U.S. Census Bureau 2018c).

Table 2

The Census Bureau also publishes median household income data from the Current Population Survey (CPS), which show that median incomes in Minnesota rose by an incredible 21.9 percent from 2010 to 2016, compared with growth of 7.9 percent in Wisconsin. According to the CPS, in 2010 the median household in Minnesota had income 3.9 percent higher than the median household in Wisconsin. By 2016, the Minnesota median was 17.4 percent higher than the median in Wisconsin.

In 2014, the CPS was redesigned with new income questions, which may make the CPS estimates less reliable when looking at changes that cross the 2014 break in the series. Still, there is no clear reason why the new CPS questions would lead to a dramatically different measurement of income in Minnesota than in Wisconsin, given the various similarities between the two states.

The Census Bureau also measures income at the family level, which is important since a single household can house multiple families—one might argue that household incomes are rising more in one state than another because of increasing co-residency of families in that state.5 However, this does not appear to be driving the differences for Minnesota and Wisconsin. From 2010 to 2017, median family income in Minnesota rose by 8.5 percent, adjusted for inflation. Over the same period, inflation-adjusted median family income grew by 6.4 percent in Wisconsin.

Poverty

Given Minnesota’s far better growth in incomes, it is not surprising that the Gopher State also experienced a larger reduction in poverty than Wisconsin. What may be surprising is that poverty in Wisconsin appears to have actually gotten worse since Governor Walker took office—a period in which Wisconsin’s overall economy grew steadily.

Figure F shows changes in Minnesota’s and Wisconsin’s poverty rates from 2010 to 2016, using several different government poverty measures and data sources. According to the CPS, the poverty rate in Minnesota declined by 2.1 percentage points from 2010 to 2016, reaching 8.7 percent in 2016—4.0 percentage points lower than the national average and one of the lowest in the country.6 In contrast, over the same period, the poverty rate in Wisconsin rose by 0.6 percentage points to 10.7 percent—ironically, about the same rate that Minnesota had back in 2010 (10.8 percent). Notably, the national poverty rate declined from 2010 to 2016, meaning that Wisconsin was bucking the national trend (U.S. Census Bureau 2017c).

Figure F

Similarly, from 2010 to 2016, the share of children in poverty fell by 2.1 percentage points in Minnesota to 12.5 percent—unquestionably too high, but below the national child poverty rate of 18.0 percent and ninth lowest in the country. In contrast, the share of Wisconsin children in poverty rose by 2.9 percentage points to 16.3 percent—meaning that about 1 in 6 Wisconsin children were in poverty (U.S. Census Bureau 2018d).

Poverty as measured in the ACS tells a partially different story. According to the ACS, from 2010 to 2016 the share of Minnesotans in poverty fell by 1.7 percentage points to 9.9 percent. In Wisconsin, the poverty rate also fell, but by only 1.4 percentage points to 11.8 percent. Among children, the share in poverty in Minnesota fell by 2.5 percentage points to 12.7 percent. In Wisconsin it fell by a larger 3.4 percentage points down to 15.7 percent. Though the ACS data indicate a larger reduction in child poverty for Wisconsin than Minnesota, it is worth noting that, even at 15.7 percent, Wisconsin’s child poverty rate in 2016 was still higher than in any year prior to the Great Recession going back to 2000 when the ACS began. It was also larger than Minnesota’s child poverty rate has ever been measured in the ACS.7

The Census Bureau also publishes an alternative poverty measure known as the Supplemental Poverty Measure (SPM), which accounts for a larger set of family income sources and expenses, and adjusts for geographic price differences. Minnesota and Wisconsin had similar SPM poverty rates from 2009 to 2011, at 10.3 percent and 10.6 percent, respectively. (The SPM poverty rate at the state level is calculated using three-year averages.) In the most recent SPM data, showing the average from 2014 to 2016, Minnesota and Wisconsin had SPM poverty rates of 8.0 percent and 10.4 percent, respectively. In other words, Minnesota’s SPM poverty rate fell by 2.3 percentage points, while Wisconsin’s was virtually unchanged, decreasing by only 0.2 percentage points.8

Health insurance

In what may have been one of the most consequential decisions made by his administration—and one of the few where there is a direct, measurable impact on the welfare of the state—Scott Walker chose not to accept federal funding to set up a health exchange or to expand Medicaid under the Affordable Care Act. As mentioned in the “Jobs” section above, Governor Walker’s rejection of federal health care money very likely cost the state jobs. It also surely prevented many of the state’s poorest residents from gaining access to health care.

As shown in Figure G, from 2010 to 2016, the share of people without health insurance declined in both Minnesota and Wisconsin. This is not surprising given the improving health of the labor market—which, all else being equal, should allow more people to access employer-provided health care—as well as the creation of ACA insurance exchanges and the implementation of the individual mandate. However, the decline in the uninsured rate was markedly larger in Minnesota than in Wisconsin. In 2010 the share of the population without any health insurance was actually larger in Minnesota than in Wisconsin, at 9.8 percent and 9.4 percent, respectively (DeNavas-Walt, Proctor, and Smith 2011). But by 2016, Minnesota’s uninsured rate had fallen 5.7 percentage points to 4.1 percent, while Wisconsin’s uninsured rate fell 4.1 percentage points to 5.3 percent (Barnett and Berchick 2017). The difference between the two states may seem like a small gap, but if Wisconsin had the same coverage rate as Minnesota, it would mean an additional 70,000 Wisconsinites would have health insurance.9

Figure G

It is important to note also that Minnesota’s comparatively larger expansion of health insurance cannot be attributed solely to Governor Dayton’s decision to expand Medicaid under the ACA while Governor Walker did not. The share of people with public health insurance did rise more in Minnesota than in Wisconsin, by 3.6 and 1.8 percentage points, respectively. Yet at the same time, the share of the population with private health insurance also rose more in Minnesota (2.0 percentage points) than in Wisconsin (0.9 percentage points). In other words, denying low-income families in Wisconsin access to Medicaid did not appear to have led to any greater take-up of private health insurance.

GDP

Although gross domestic product (GDP) is a more abstract measure than many of the other measures already described, it is still worth noting that Minnesota also outperformed Wisconsin at the macroeconomic level, achieving stronger overall economic growth than Wisconsin in both aggregate and per-worker terms. According to the Bureau of Economic Analysis, from 2010 to 2016, Minnesota’s GDP grew by 12.8 percent in real (inflation-adjusted) terms, while Wisconsin’s grew by 10.1 percent. The country as a whole had growth of 12.0 percent. On a per-worker basis, growth in Minnesota was 3.4 percent and in Wisconsin it was 2.7 percent. Nationally, per-worker GDP grew by only 0.1 percent.10

Population

Finally, it’s been often said that people vote with their feet—that is, where people choose to live is an indicator of overall satisfaction with the quality of life, or the perceived potential for an improving quality of life, in a particular area.

Table 3 shows data from the U.S. Census Bureau’s estimates of state resident population change. From April 2010 to July 2017, the population of Minnesota grew by 5.1 percent—slightly less than the U.S. average of 5.5 percent. Over the same period, Wisconsin’s population grew by only 1.9 percent. More tellingly, net migration—the sum of people moving in and moving out of a state—has been negative in Wisconsin from April 2010 to July 2017, with the state losing nearly 18,000 more residents than it has gained. This loss has been heavily driven by domestic migration: Nearly 70,000 more residents left Wisconsin to move to a different state than new residents moved in from elsewhere in the U.S.

Table 3

In contrast, Minnesota added over 71,000 residents, on net, due to migration. Like Wisconsin, Minnesota had a decline in net domestic migration, with 32,000 more residents leaving for other states than entering. But the state simultaneously took in nearly 104,000 residents from outside the U.S., compared with about 51,000 international migrations into Wisconsin. Importantly, the domestic migration trend has shifted for Minnesota in the most recent year: from July 2016 to July 2017, net domestic migration was positive, with nearly 8,000 more U.S. residents moving to Minnesota than departing. In Wisconsin, the exodus continued, with over 2,000 more people leaving the state than coming to it from other states within the U.S.11

Conclusion

Precisely analyzing the causal impact of a particular policy requires sophisticated statistical methods—often using two geographies’ or two populations’ similarities as a means of isolating the effect of the policy from other factors that could influence outcomes. This report does not provide that level of causal analysis. Rather, it takes a higher-level look at some key metrics of economic performance and family well-being, and it assesses how these metrics have changed after seven years of very different policy agendas implemented in two very similar neighboring states. Although specific policies in either state may have had marginal impacts that bucked the larger trends, the sum of all these metrics leads to a very clear conclusion—outcomes for workers and families over the course of the last seven years have been markedly better in Minnesota than in Wisconsin.

In some cases, it is possible to draw a straight line between a particular choice or set of policy choices and the effect it had on the state’s economy and the welfare of its residents. For example, Wisconsin’s Act 10 decimated the state’s public sector, leading to a loss of both public-sector jobs and the private-sector jobs that those public dollars supported. The combination of Act 10 and the adoption of a so-called right to work law led to a dramatic decline in the share of Wisconsin workers in unions. This almost certainly dampened wage growth, and it likely contributed to the state’s weaker income growth and slower progress reducing poverty.

In addition, the Walker administration’s decision to reject federal health exchange funding, reject the Affordable Care Act’s Medicaid expansion, reject federal transportation dollars, and reject expanded federal unemployment insurance funding has likely contributed to slower job growth in the health care, transportation, and construction industries. It has likely led to higher numbers of uninsured residents, higher rates of long-term unemployment, and more people dropping out of the labor force.

In contrast, Minnesota lawmakers’ large public investments in infrastructure, health care, and education fueled the state’s impressive job growth in construction, health care, education, and other industries. The state’s decision to raise its minimum wage spurred strong wage growth for low-wage workers. Expansions to state safety net programs and low-income tax credits likely helped to bolster incomes and bring down Minnesota’s poverty rate. And, importantly, there is little evidence that the tax increases enacted to finance the state’s investments, or the decision to raise the state minimum wage, did anything to hamper job growth.

To be clear, conditions for workers and families in Minnesota today are not perfect. All of the metrics reviewed in this report could be better, and other metrics in Minnesota point to other problems. For example, there are striking racial inequities in Minnesota, with high poverty rates, high jobless rates, and severe racial segregation in the state’s urban centers (Nelson 2017; Gee 2016; Perry 2018). Advocates point to a lack of meaningful public and private investment in communities of color and misguided education policies that have encouraged racial segregation (Gee 2016). But the progress achieved in Minnesota over the past seven years is undeniable, and that progress has the fingerprints of good state policy all over it. The good news for Wisconsin is that achieving similar progress for Badger State workers and families is possible—but it will take a different policy agenda from the one the state has pursued for the past seven years.

About the author

David Cooper joined the Economic Policy Institute in 2011. He conducts national and state-level research, with a focus on the minimum wage, employment and unemployment, poverty, and wage and income trends. He also coordinates and provides technical support to the Economic Analysis and Research Network (EARN), a national network of 59 policy research and advocacy organizations across 43 states plus the District of Columbia. Cooper has testified in a half-dozen states on the challenges facing low-wage workers and their families. His analyses on the impact of minimum wage laws have been used by policymakers and advocates in city halls and statehouses across the country, as well as in Congress and the White House. Cooper has been interviewed and cited by numerous local and national media, including The New York Times, The Washington Post, The Wall Street Journal, CNBC, and NPR. He received his master of public policy degree from Georgetown University.

Appendix

Appendix Table A1

Appendix Table A2

Appendix Table A3

Endnotes

1. All union membership data are from BLS 2018. As discussed in Bivens et al. 2017, unionization has been falling nationally for decades due to policy assaults at both the state and federal level. The fact that Minnesota’s unionization rate fell less than the national average over this period suggests that state policy action can push back against these national trends.

2. The “other services” category comprises establishments engaged in providing services not specifically provided for elsewhere in the North American Industry Classification System (NAICS). Establishments in this sector are primarily engaged in activities, such as equipment and machinery repairing, promoting or administering religious activities, grantmaking, advocacy, and providing drycleaning and laundry services, personal care services, death care services, pet care services, photofinishing services, temporary parking services, and dating services.

3. Author’s calculations using Current Employment Statistics data from the Bureau of Labor Statistics.

4. All labor force statistics come from EPI analysis of Current Population Survey basic monthly survey microdata from the Bureau of Labor Statistics.

5. The Census Bureau defines a household as the group of people who occupy a housing unit (such as a house or apartment) as their usual place of residence, including both families and unrelated persons. Families are groups of two or more people (one of whom is the householder) related by birth, marriage, or adoption and residing together; all such people (including related subfamily members) are considered as members of one family. Family income is typically higher than household income because it excludes single individuals living alone, who are counted as individual data points in measurements of household income.

6. EPI analysis of U.S. Census Bureau 2017c.

7. EPI analysis of U.S. Census Bureau 2018a and 2018b.

8. Author’s calculations using Short 2012 and Fox 2017.

9. Author’s calculations.

10. Author’s calculations from BEA 2017 and 2018.

11. All population statistics are from U.S. Census Bureau 2017a and 2017b.

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In the years after it took effect, this provision raised the cost of CEO pay to employers (i.e., shareholders) by more than 50 percent. Prior to 2013, shareholders of health insurance companies effectively paid just 65 cents on every dollar of CEO compensation, since their taxes would fall by 35 cents for every dollar they paid out. After 2013, they would be paying 100 cents of every dollar.

If CEO pay bears a close relationship to their value to the company, this change in the tax code should have led to some reduction in their pay. Using a wide variety of specifications, controlling for growth in profits, revenue, stock price, and other relevant factors, we found no evidence that the pay of health insurance CEOs fell at all in response to the limit on deductibility.

While this finding does support the view that CEO pay is not closely related to their value to shareholders, it is worth asking how much this provision mattered to insurers’ bottom line. In other words, how much more did they effectively end up paying to their CEOs, measured as a share of profits, as a result of the change in the tax code?

The table below shows the average cost of this provision to insurers in our sample, as well as the average executive compensation of firms and their average net income. The last column 6 shows the average cost of the provision relative to profits. (This is the average of the ratios, looking at each firm’s tax cost relative to its profits.)

Table 1

The average cost for the four years ranges between 0.8 percent of profits in 2016 and 1.4 percent in 2014. Is this the sort of amount that companies would typically worry about? To take a couple of comparisons, Apple’s annual profits have been running in the $40 to $50 billion range. Would Apple be interested in a tax scheme that would add $400 to $500 million to its bottom line each year?

Alternatively, General Motors has roughly 50,000 hourly employees. Its after-tax profit in both 2015 and 2016 was around $9.5 billion. (2017 appears to have been a bad year due to tax timing.) Would General Motors be concerned about a $2,000 increase in the annual pay of its workers or as a per worker addition to their health care costs? This would also be roughly 1.0 percent of its profits.

To take another example, the Federal Register put the cost of all Dodd-Frank provisions at a cumulative total of $10.4 billion for its first six years, or roughly $1.7 billion annually (note that these are gross costs to the companies in the industry—the act also provides benefits). Since after-tax profits for the financial sector have averaged close to $200 billion annually, this puts the Dodd-Frank costs in the neighborhood of 1.0 percent of profits.

The additional cost of CEO pay as a result of the deductibility limit clearly was not going to drive insurers into bankruptcy if they chose to ignore it and leave their CEO pay policies unchanged. Nonetheless, there do seem many instances where companies have been concerned about comparably sized or smaller threats to their profits. Based on these other situations, there should have been enough at stake to get their attention.

The failure of CEO pay to respond to the change in deductibility for health insurers hence seems consistent with the view that CEOs and top management are to a large extent writing their own paychecks and that shareholders have little ability to stop them. The people who most immediately determine CEO pay are the boards of directors. The directors often owe their positions to top management. They can also count on staying on the board as long as they don’t rock the boat. More than 99 percent of directors who are nominated for reelection win.

While it is possible for an activist investor to organize to remove board members if they feel they are not doing their job in reining in CEO pay, this is an extremely difficult task for a limited potential gain. Think of the people in a neighborhood organizing to remove members of their city council and/or mayor because they are unhappy about potholes on their street. It’s not impossible, but it just doesn’t occur very often.

This story would suggest that we need to change the rules of corporate governance to make it easier for shareholders to act against top management. Congress made a very small step in this direction in the Dodd-Frank financial reform bill. This bill contained a provision that requires CEO pay packages be sent out to shareholders for a yes or no vote every three years.

This “say on pay” vote is nonbinding. It can be embarrassing to a company’s board to have a package voted down, but it doesn’t directly change anything.

The vote could be made to have more consequence. For example, the law can be rewritten so that the board forfeits its pay if the CEO pay package is voted down. This would give boards a large incentive to avoid overpaying their CEO.

This sort of change may still not be adequate to get CEO pay back down to earth, but it could be a good first step. Directors need to have some incentive to restrain CEO pay. It does not seem this incentive exists at present.

The tax cut law that President Trump boasts will make his wealthy friends “a lot richer” is just the latest in a series of betrayals of working people by the administration and Congress since Trump took the oath of office on January 20, 2017. In addition to passing a massive tax cut for wealthy business owners, Trump and Republicans in Congress have rolled back important worker protections, advanced nominees to key administration posts who have a history of exploiting working people, and taken other actions that further rig the system in favor of corporate interests and the wealthiest Americans.

Here are the 10 worst things Congress and Trump have done to undermine pay growth and erode working conditions for the nation’s workers.

Enacting tax cuts that overwhelmingly favor the wealthy over the average worker

The net effect of the TCJA is clearly regressive, with 83 percent of the benefits accruing to the top 1 percent by the time it is fully phased in, in 2027, according to the Tax Policy Center. Defenders of the TCJA argue that the benefits of corporate tax cuts will trickle down to workers in the form of faster productivity growth and higher wages, but this claim falls apart in the face of many real-world data points; for one thing, the historically high level of corporate profits proves we do not need to redistribute wealth upward through the tax code to give corporations funds for productivity-enhancing capital investment—they already have the funds they need.

A wide body of research finds that the benefits of a cut in corporate income taxes accrue overwhelmingly to owners of capital instead of to workers. In turn, capital ownership is extraordinarily concentrated at the top of the income distribution. For example, the top 1 percent of households own roughly 40 percent of all stocks, including those owned indirectly in 401(k)s and other savings vehicles.

Besides the permanent cut to corporate tax rates, the TCJA’s temporary cuts to individual income taxes includes a preferential rate for “pass-through” businesses—businesses that pay no corporate taxes but whose owners must pay taxes on profits on their individual tax returns when those profits are “passed through” to them. While this is often described as a tax cut for “small businesses,” that description is misleading. Pass-through income is even more concentrated in the very upper reaches of the income distribution than corporate income, with 69 percent of pass-through income claimed by the richest 1 percent of households. This means that the lion’s share of benefits from a preferential pass-through rate will not go to archetypal small businesses like neighborhood stores or day care operations, but instead to hedge funds, white-shoe law firms, and consulting and accounting firms. And, notably, almost surely the companies that make up the Trump Organization.

Taking billions out of workers’ pockets by weakening or abandoning regulations that protect their pay

Early on the administration voiced opposition to the central component of a 2016 rule updating overtime regulations and, in October 2017, the administration effectively killed the 2016 rule. This action deprived 12.5 million workers of automatic overtime protection and will cost workers an estimated $1.2 billion a year. The 2016 overtime rule was promulgated by the Department of Labor (DOL) to restore lost overtime pay to America’s workers by raising the salary threshold below which workers are automatically eligible for overtime pay—from $23,660 to $47,476. Prior to the 2016 rule, the threshold had not been adequately raised in more than 40 years. As a result, low-level managers at retail and fast food outlets who made only $23,660 a year—lower than the poverty rate for a family of four—could be required to work long hours without any extra pay for the extra hours worked. DOL’s overdue attempt to restore lost pay to America’s workers was blocked in the courts by business interests, while Trump administration officials claimed that the new $47,476 threshold was “too high.” On October 31, 2017, the administration made clear in legal proceedings that it would not defend the rule. This stance ignores the link between outdated worker protections and stagnant wage growth. One reason Americans’ paychecks have not been keeping pace with productivity growth is that millions of low- and middle-wage workers who should have access to overtime protections have been working overtime but not getting paid for it.

In December 2017 the administration took the first step toward weakening the tip protections, which would cost workers another $5.8 billion a year in tips they earned but that would likely be pocketed by employers. The current restrictions on “tip pooling,” instituted by DOL in 2011, allow restaurants to pool the tips servers receive but stipulate that the employer may only share pooled tips with other workers who customarily receive tips, such as bussers and bartenders. Employers are prohibited from retaining any of the pooled tips themselves. On December 4, the Trump Department of Labor took its first major step toward allowing employers to legally take tips earned by workers who rely on tips when it proposed rescinding those restrictions. At first glance, the proposal seems benevolent: restaurants would be able to pool the tips servers receive and share them with untipped employees such as cooks and dishwashers. But, crucially, the repeal would mean that employers are no longer required to distribute pooled tips to other workers: as long as tipped workers earn the minimum wage, the employer can legally pocket their tips. EPI estimates that employers will likely pocket nearly $6 billion per year of their workers’ hard-earned tips each year—around $1,000 a year per tipped worker. As a result of this rule, workers will take home less, and their loss will be employers’ gain.

Blocking workers from access to the courts by allowing mandatory arbitration clauses in employment contracts

Forced arbitration is a tool employers use to prevent their employees from seeking justice in court when disputes arise in the workplace. American employers are increasingly requiring workers to sign arbitration agreements in order to get, or keep, their jobs. Arbitration is like a private, for-profit court system, in which the employer usually gets to pick the judge.

Mandatory arbitration panels overwhelmingly favor employers, with employees in mandatory arbitration winning only just about a fifth of the time (21.4 percent). In contrast, they win 36.4 percent of the time in the federal courts and 57.0 percent of the time in state courts. Differences in damages awarded are even greater, with the median or typical award in mandatory arbitration being only about one-fifth of the median award in the federal courts and well under half (43.0 percent) of the median award in the state courts.

Among private-sector nonunion employees, 56.2 percent are subject to mandatory employment arbitration procedures. This means that 60.1 million American workers no longer have access to the courts to protect their legal employment rights and instead must go to arbitration.

Moreover, the events of 2017 brought national attention to what many women have known privately for years: there is still a vast amount of sexual harassment and gender discrimination in America’s workplaces. Mandatory arbitration of employment disputes has fueled the sexual abuse of women by powerful men in politics, business, and the media by barring women from seeking justice against their abusers in court. Forced arbitration prevents victims of sexual harassment from taking their employers to court or even speaking out—under arbitration, most accusations are kept confidential and companies can decide who adjudicates the case.

In 2014, the National Labor Relations Board issued its decision in the Murphy Oil case, finding that arbitration agreements that include class action waivers of all work-related claims are prohibited by the National Labor Relations Act. When the Murphy Oil case was originally headed to the Supreme Court’s docket in 2016, Obama’s Department of Justice filed a brief arguing in favor of the workers. But when Justice Scalia died, the Supreme Court continued this case to the 2017 term. When the briefing resumed in 2017, the Trump Department of Justice switched sides and filed a brief on the side of employers. The Supreme Court heard oral arguments in the case in October 2017 and is expected to deliver a decision before June 2018. And with Justice Gorsuch on the bench, the court will likely give a green light to the proliferation of mandatory arbitration agreements with class action waivers.

Pushing immigration policies that hurt all workers

Ending DACA is forcing young immigrant workers out of the regulated labor market and into the shadow labor market, where they are easily exploitable by employers by virtue of losing their ability to work lawfully. While a federal district court in California temporarily enjoined the Trump administration on January 10, 2018, from continuing the phase-out of DACA, and ordered that it continue accepting applications for renewals, the impact of the decision is unclear. The government will quickly appeal the decision, the timeline for processing renewals is unclear, and no new applications from potential DACA beneficiaries will be permitted.

If the Trump administration’s termination of DACA is allowed to proceed, then each of the nearly 700,000 DACA recipients who are now working with valid work permits will—once those permits expire—become vulnerable to wage theft and other forms of exploitation. That hurts not just them, but it also diminishes the earnings and bargaining power of the U.S. citizens and authorized immigrants who work alongside them.

On September 5, 2017, Attorney General Jeff Sessions announced that the Trump administration would gradually “wind down” and end DACA, a Department of Homeland Security initiative from 2012 that temporarily deferred the deportation of approximately 800,000 young immigrants who were brought to the United States as children. DACA was implemented by the Obama administration after Congress failed to pass the Dream Act, a bill that would have shielded young immigrants brought here illegally by their parents from deportation and offered them a path to permanent residence and citizenship.

On average, DACA recipients saw their wages increase significantly after DACA was implemented; those who were 25 and older increased their average hourly wages by 84 percent. The vast majority—nearly 700,000—of those original DACA recipients are still enrolled in DACA and are employed via two-year work permits that recipients have been able to apply for and renew. DACA has been an unqualified success and has benefited not only the DACA recipients themselves, but also the country and the economy.

Prior to the January 10 injunction, it had been estimated that approximately 122 DACA recipients were losing their work authorization and protection from deportation every day—and that after March 5, 2018, the number losing protection would rapidly increase. Unless the January 10 injunction remains in effect and survives the forthcoming appeals, or Congress passes legislation to give DACA recipients a new immigration status, these workers will continue to be vulnerable. While President Trump has called on Congress to pass a bill to legalize “dreamers” and DACA recipients, he has made any legislation on DACA contingent on building a border wall and other immigration enforcement measures, making a bipartisan deal more difficult to achieve.

The end of DACA means nearly 700,000 young immigrants will become deportable as their protections expire. By losing the ability to work legally and contribute to the United States, DACA recipients will effectively be left without labor rights and employment law protections in the workplace. The United States is the only country many have DACA recipients have ever known since they were small children, which means they are unlikely to “self-deport” as the Trump administration would like them to do. When their permits expire, DACA recipients will be pushed into the informal labor market in order to survive, and as a result will earn lower wages and lose the ability to exercise their workplace rights. This loss of rights and wages en masse for so many workers will in turn degrade labor standards for the American workers employed alongside them.

Rolling back regulations that protect worker pay and safety

On April 3, 2017, Trump signed a congressional resolution blocking the Workplace Injury and Illness recordkeeping rule, which clarifies an employer’s obligation under the Occupational Safety and Health Act to maintain accurate records of workplace injuries and illnesses. Recordkeeping is about more than paperwork. If an employee is injured on the job (for example, is cut or burned, or suffers an amputation), contracts a job-related illness, or is killed in an accident on the job, then it is the employer’s duty to record the incident and work with the Occupational Safety and Health Administration (OSHA) to investigate what happened. Failure to keep injury/illness records means that employers, OSHA, and workers cannot learn from past mistakes, and makes it harder to prevent the same tragedies from happening to others. By signing the resolution to block this rule, Trump gave employers a get-out-of-jail-free card when they fail to maintain or when they falsify—their injury/illness logs. Workers who could have been saved from preventable accidents on the job will have to pay the price with their health or even their lives.

On March 27, 2017, Trump signed a congressional resolution blocking the Fair Pay and Safe Workplaces rule, which sought to ensure that government contracts are not going to companies with a record of violating workers’ rights or putting workers in danger. Under the rule, companies applying for federal contracts must disclose certain violations of federal labor laws and executive orders—specifically violations of laws and orders addressing wage and hour, safety and health, collective bargaining, family medical leave, and civil rights protections. By blocking the rule, Trump leaves civil servants who are awarding federal contracts with no effective system for distinguishing between law-abiding contractors and those that do not take worker protections seriously. Billions of taxpayers’ dollars have been awarded to companies that harm America’s working people by failing to pay minimum wages or overtime or violating other important labor and employment laws and regulations.

Stacking the Federal Reserve Board with candidates friendlier to Wall Street than to working families

Actions taken by the Federal Reserve can either help raise living standards and reduce income inequality—or prolong wage stagnation and make our economy even more unequal. That is because the Fed largely sets interest rates for the economy and acts as the chief regulator of the nation’s big banks, with a Fed mandate to rein in risky Wall Street activities that have so many times hurt Main Street.

Higher interest rates are used to tamp down inflationary pressures, but when used too aggressively during times when inflation is not rising (as it is not right now), raising rates will throw people out of work and drive down wages. Outbreaks of unexpected inflation are particularly bad for wealth-holders while periods of too-high unemployment are particularly bad for low- and moderate-wage workers. In recent decades, the Fed has far too often yielded to the political preferences of wealth-holders and kept rates too high, hurting workers.

Trump’s first appointment to fill Fed vacancies was Quarles, who has consistently defended Wall Street against sensible regulation that would make it less crisis-prone, and has supported baseless criticisms of the Fed’s commitment to low interest rates during the recovery from the Great Recession. Trump also replaced Janet Yellen as the Federal Reserve chair. Yellen has been consistently supportive of monetary policy that targets low unemployment through low interest rates as well as of the Fed’s role as chief financial watchdog. She should have been reappointed as chair. Both she and Stanley Fischer have announced their resignations from the full board, giving Trump two more vacancies to fill. This means that the Trump administration will be able to fully pack the Fed’s Board of Governors with Quarles-like candidates, who will give Wall Street free rein while prematurely raising interest rates to slow the economic expansion just as it has finally begun to reach many working families.

Ensuring Wall Street can pocket more of workers’ retirement savings

Since Trump took office, the Department of Labor has actively worked to weaken or rescind the “fiduciary” rule, which requires financial advisers to act in the best interests of their clients when giving retirement investment advice. The rule was finalized by the Department of Labor in April 2016 after an exhaustive economic analysis found that “adviser conflicts are inflicting large, avoidable losses on retirement investors, that appropriate, strong reforms are necessary, and that compliance with this final rule and exemptions can be expected to deliver large net gains to retirement investors.” The rule was supposed to go into effect in April 2017 but key provisions were delayed multiple times, with the most recent 18-month delay pushing back the ability to enforce the rule to July 1, 2019. EPI estimates that retirement savers who will get, or have already received, advice tainted by conflicts of interest during the delays will lose a total of $18.5 billion out of their retirement savings over the next 30 years.

The rule is being delayed with the clear intent of never fully implementing it. Instead, the Trump administration is buying time until it can permanently dismantle core elements, including the enforcement provisions that put teeth in the “best interest” requirements. The administration claims that it needs extra time to assess the rule’s effect on access to retirement investment advice—but the rule has already undergone a six-year vetting process on the likely impact of the rule, a process that incorporated feedback from four days of hearings, more than 100 stakeholder meetings, thousands of public comments, and a detailed review of the academic literature. According to the Consumer Federation of America, industry claims that the rule harms investors are based on “flimsy and biased evidence.”

Stacking the Supreme Court against workers by appointing Neil Gorsuch

The Senate confirmed Gorsuch after refusing to consider President Obama’s nominee to the Supreme Court for an unprecedented 293 days. During his confirmation hearing, Gorsuch was questioned extensively about his dissent in the TransAm Trucking, Inc. v. Administrative Review Board case. The case involved a trucker who had been fired for leaving his stranded trailer to seek shelter in subzero temperatures. An administrative law judge, the Administrative Review Board, and the Tenth Circuit majority held that the driver had been unlawfully fired. Only Gorsuch dissented. In his dissent, Gorsuch described health and safety goals as “ephemeral and generic” and a worker having to wait in subzero temperatures with no access to heat while experiencing symptoms of hypothermia as merely “unpleasant.” This dissent indicates that Judge Gorsuch does not understand workers’ lives or the laws that protect them, and suggests a hostility to fundamental worker protections.

One of the most fundamental worker protection issues on the docket is the right of workers to form a union and negotiate wages and working conditions with employers. In February the court will hear arguments in Janus v. AFSCME, a case involving public-sector unions’ ability to collect “fair share” fees. Fair share fees are paid by workers who choose not to join their workplace’s union but who are still represented by the union, and benefit from union contract negotiations and have a union advocate working for them if they file a sexual harassment complaint or other grievance with their employer. Taking away public-sector unions’ ability to collect these fair share fees—while the unions are nonetheless required to provide services and representation to these workers—would threaten the unions’ very existence by weakening their financial stability. These unions have worked for decades to protect the rights of the teachers, nurses, firefighters, police officers, and other public service workers that communities depend on.

The very day the Supreme Court agreed to hear the Janus case, Gorsuch was the keynote speaker at an event sponsored in part by the Bradley Foundation. The Bradley Foundation has helped pay for the litigation expenses of the plaintiffs in Janus.

Trying to take affordable health care away from millions of working people

The individual mandate aims to stop free-riding by healthy people that could threaten the efficiency of insurance markets (people not paying premiums when they’re healthy, only diving into insurance pools and paying premiums when they are sick). As an article in Time explains, “Many healthy people would voluntarily opt to go without coverage, and insurers could raise their premiums to cover the remaining, sicker population. These higher premiums would in turn cause more consumers to become priced out of the market.” While reports of massive coverage losses ultimately tanked congressional efforts to totally repeal the ACA last fall, the inclusion of the individual mandate repeal in the Tax Cuts and Jobs Act and the Trump administration’s cuts to ACA advertising and outreach signal a persistent desire to weaken or abolish the ACA.

It’s no surprise that the latest hit to the ACA will result in millions losing coverage. Congress spent the first half of 2017 trying to push through various versions of an ACA repeal bill called the American Health Care Act (AHCA). At every iteration, CBO analysis revealed the act would leave tens of millions without access to health care (with millions losing coverage even under a so-called skinny repeal that eliminated just a few key elements of the ACA). The AHCA would have also hurt those Americans who managed to retain health care coverage. It would have raised premiums and out-of-pocket costs, with out-of-pocket costs alone rising by $33 billion annually. And the AHCA would have slowed job growth significantly: working families’ spending would be curbed by the much higher out-of-pocket health expenses they face, which would lower demand for goods and services and thus slow job growth. See EPI’s interactive map showing how many jobs the AHCA could have cost each state.

Undercutting key worker protection agencies by nominating anti-worker leaders

On January 20, 2017—his very first day in office—Trump failed workers when he nominated Andrew Puzder, then-CEO of CKE Restaurants (the parent company of Carl’s Jr. and Hardee’s), to be secretary of the Department of Labor. Puzder has opposed raising the minimum wage and the overtime salary threshold, criticized paid sick time proposals and health and safety regulations, and was CEO of a company with a record of violating worker protection laws and regulations. While his nomination was ultimately withdrawn due in great part to intense pressure from workers’ rights advocates, Trump’s original selection made a powerful statement—the president was prepared to support a labor nominee who is hostile to policies that would benefit the nation’s workers.

On September 2, 2017, Trump nominated Cheryl Stanton to serve as the administrator of the U.S. Department of Labor’s Wage and Hour Division (WHD). In addition to enforcing fundamental minimum wage and overtime protections, WHD has a full host of responsibilities and enforcement authorities that include labor protections for workers in low-wage industries where workers are most vulnerable, such as agriculture. Stanton has spent much of her career representing employers, not workers, in cases alleging violations of workplace laws, including wage theft and discrimination. And Stanton was sued by a cleaning services provider who alleged that Stanton failed to pay for multiple housecleaning visits. Stanton has not been confirmed by the full Senate, but will likely be renominated by President Trump again this year.

The NLRB’s role is to protect workers’ rights under the National Labor Relations Act, deciding cases involving when and how workers can form a union and what types of activities employees can engage in to try to improve their working lives. Yet Trump has appointed leaders to the NLRB who have no record of supporting working people. On September 25, 2017, the Senate confirmed Trump nominee Rob Emanuel—an attorney at the Littler Mendelson law firm who had regularly represented large employers—to become a member of the NLRB. On November 8, 2017, the Senate confirmed Trump nominee Peter Robb as the general counsel to the NLRB. Robb has spent much of his career as a management-side labor and employment lawyer.