NCPA - National Center for Policy Analysis

HEALTH SAVINGS ACCOUNTS FOR STATE AND LOCAL WORKERS

February 16, 2005

State and local government workers enjoy generous health plans compared to private industry workers, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

According to the Bureau of Labor Statistics, the proportion of compensation spent on health benefits was 50 percent greater among state and local government workers compared to those in private sector. In fact, the average hourly cost of health benefits is more than double that of workers in the private industry.

For example:

  • The average cost of health benefits per hour of compensation for all state and local government workers was $3.38 in 2004.
  • This accounts for 9.9 percent of their total compensation.
  • By comparison, the average hourly cost of health benefits for private industry workers was only $1.54.
  • This is only 6.6 percent of total compensation.

Experts claim the high cost of health benefits strains the budgets of many state and local governments. In reality, it is the workers who suffer in the long run because they are paying the high cost of their health benefits both directly and indirectly through reduced wages. Excessive health benefits are inefficient in other ways. Some workers may prefer fewer health benefits in return for increased cash wages. For these employees, excess funds spent on health benefits are not an efficient form of compensation since they would prefer more cash instead of more health insurance.

The solution, says Herrick, is to let these workers express their preference while giving them an incentive to be wise consumers of health care and allowing them more control over how they spend their own money. Workers wanting to use more health services could use funds set aside in their HSA. Employees wishing to cash out some of their benefits and take funds as compensation.

Source: Devon Herrick, "Health Savings Accounts: The Future of Health Care For Kansans," Flint Hills Center for Public Policy, Vol. 2, No. 2, February 14, 2005.

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http://www.flinthills.org/

 

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