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January 2007 | Volume VI, Issue 1 |
Increased Minimum Wage: What will this mean?On January 10th, the United States House of Representatives passed the first increase in the federal minimum wage in almost a decade. The proposed bill would have brought the federal minimum wage for American workers to $7.25 an hour over the next two years, an astounding increase of over 40%. Two weeks later, by a narrow margin, the Senate did not pass the proposed legislation. The Democrats in the House had promoted the bill as a “clean bill”, meaning that there would be no tax breaks to small businesses that would be affected by the proposal. While the tax-break free version of the bill has been stopped in its tracks, the Senate still seems open to the possibility of passing a minimum wage hike if accompanied by certain concessions to small businesses. While a minimum wage increase may seem like great victory for those in the lowest paying sectors, one must take a step back and look at the whole picture to understand what this wage increase means. Wage is based on the value an employer assigns to an employee’s labor. Employees whose per-man-hour labor was once deemed 40% more valuable than that of minimum wage quality labor is now deemed no more valuable than an employee whose labor was just worth being on the payroll. Unskilled and young workers in the marketplace will be unable to justify the greatly increased wages and will be less likely to find employment, thereby hurting those that such proposals claim to be helping. Only union workers whose contract wages are negotiated upon multiples of the minimum wage will see any economic benefits from this proposed increase. How could this affect healthcare? When one sector of the economy is forced to change its pricing model, other sectors of the economy are forced to change as well. When inflation takes place in an economy, all aspects of the market are touched in some way. If the cost of a cheeseburger goes up, then you can bet that the cost of a hospital visit will go up as well. There is a good chance we will see rising costs of living without increased wages and salaries, and therefore it is likely that people will be even more conservative in their spending, particularly in regards to insurance. All businesses and employers must be concerned with profitability. If an employer isn’t concerned about his company’s profitability, he or she won’t be in business long. If employers are forced to pay $7.25 for the same labor that once cost them $5.15, they will change two things to maintain their business model. They will change their pricing model by raising prices for consumers, and they will change their employee compensation model by reducing benefits and only hiring and retaining labor deemed worth $7.25. Employers in sectors that tend to hire low wage workers will be less likely to afford benefits for their employees. According to a study conducted by the National Restaurant Association, approximately 30% of restaurant operators would be forced to cut employee benefits because of the minimum wage increase. So, in addition to seeing prices rise across the board in the economy, affecting the poorest workers, we may also see a significant drop off in low paid workers who are covered under any sort of healthcare. In economic hard times, people will take steps to maintain their standard of living, including cutting back on insurance premiums. With no realistic middle class tax cuts currently in sight, people will become more interested in finding tax shelters for what funds they do have. Additionally, employers who hire lower wage employees and offer benefits will need to find a way to continue offering benefits to their workers without losing money if they don’t intend to drop benefits altogether. It would seem that prices are doomed to inflation. By offering comprehensive Consumer Driven Health Plans to employers, however, TPAs give employers the ability to continue offering benefits to their employees at affordable prices. Employees will have the benefits of paying less in premiums for their coverage and having tax sheltered funds in the form of Flexible Spending Accounts or individually owned Health Savings Accounts. Through careful plan design and savings, TPAs, employers, and employees can work together to ensure that both standards of living and standards of care can be maintained through potentially difficult times. |
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LEGAL DISCLAIMER: Material contained in
this newsletter is not legal advice, and should not be construed as
legal advice. If you need legal advice upon which you can rely, you
must seek a legal opinion from your attorney. © DataPath, Inc. 2007 |