Scrooge: Don't forget the ghosts in economy's closet
By ROBERT TRIGAUX
Published June 25, 2003
We're here in Happytown today talking with its most bullish citizen, Pollyanna.
Uh, Pollyanna, what's your take on the current economy?
"Where to begin, things look so positive," she says, beaming. "Interest rates are low and the Federal Reserve today may trim them some more. Inflation remains tiny. Consumer confidence is recovering, especially in Florida. And the stock market is rising. Better days are just around the corner."
For a competing viewpoint, we travel next to Downerville to interview Mr. Bah Humbug himself, Ebenezer Scrooge.
Mr. Scrooge, are we really on the verge of economic recovery?
"Not likely, young scribe," he sneers. "Consumer debt is high. Unemployment is now above 6 percent. Personal bankruptcy is out of control. Talented and educated people can't find decent work!"
Imminent financial prosperity or malaise, it seems, is in the eye of the beholder. We may be inching our way further from a downturn, but nobody should break into Happy Days Are Here Again just yet.
Here are two good reasons why. Wimpy wage hikes and soaring health insurance costs.
The decline in pay raises for workers in the private sector that began in 2001 is expected to continue through at least the rest of the year. Look for 3 percent wage increases to be the norm through 2003. So says the Wage Trend Indicator, published by BNA Inc. of Washington, D.C., a report designed to detect trends in private industry wages six to nine months before the federal government's official wage data.
Now contrast those slim wage gains with HMO premiums nationwide that could rise as much as 18 percent next year. That's according to early data from 140 large companies released this week by benefits consultant Hewitt Associates. For large employers, 2004 would be the fourth straight year of double-digit HMO rate increases.
What happens when modest wage gains meet soaring and repeated HMO cost hikes? Employees start to wonder if they are taking a big financial step backward. It makes for a most un-American feeling.
The numbers - fear not, I'll only toss out a few - are sobering.
During the late 1990s boom, wages jumped sharply. But raises stalled in 2001. Real weekly earnings have slipped by nearly 2 percent, thanks to lower pay rates combined with fewer hours of work available across the economy.
What will revive wage increases? The economy has to start growing faster, say 3 percent or more, and remain at that pace for a while. Or, the unemployment rate must dip below 5 percent, which will make it tougher to fill job openings and spur wage competition again.
In the meantime, if you're lucky enough to have health insurance, get ready - again - to pay more for it.
Companies are starting to negotiate health plan rates for 2004, and figures compiled by Hewitt show that initial HMO rates are averaging 17.7 percent. That's down slightly from the 21 percent increase reported at the same time last year.
The good news is that the pace of HMO cost increases is slowing. That's a sign Hewitt executive Ken Sperling says may mean that the rapid escalation of HMO cost hikes in recent years may have run its course.
The bad news is the habit of companies to pass along more and more of the cost increases of employee health insurance plans to its workers is ongoing. Hewitt cites these trends:
The number of companies with a $15 office copay increased significantly from 11 percent in 2001 to 24 percent in 2002, and then to 43 percent in 2003.
Employers offering $10 office copays dropped from 64 percent in 2001 to 58 percent in 2002, sinking further to 39 percent in 2003.
Employees are also being asked to pay more for prescription drugs.
It's not that companies are dumping every new cost increase on their workers. Employers still pay the bulk of health-care expenses: typically 80 percent. But knowing that doesn't make the wallet feel any better.
I'd really like to go back and ask Pollyanna about the painful squeeze between wages and health costs. But I can't seem to find Happytown on the map any more. And Pollyanna is no longer taking my calls.
For now, I'm stuck in Downerville with Mr. Bah Humbug.
