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Will Health Savings Trickle From Your Paycheck To Social Security?

If employers save money on health insurance because of the new health law, will they give their workers a raise?

Absolutely, says a new report by the trustees of Social Security.

The theory is that the health law will help the financial viability of Social Security because employers will shift money they now spend on health insurance into higher wages. That, in turn, will mean more taxes collected on fatter payrolls to support Social Security and Medicare.

Further, the report cited two provisions in the health law that will reduce employers' health insurance costs:

  • A tax on Cadillac plans, or unusually expensive health insurance plans, that goes into effect in 2018 will shrink their popularity and plans will be cheaper and health spending by the employer will go down.
  • The formation in 2014 of new insurance exchanges that are expected to increase competition and drive premiums lower.
  • The new health law is "estimated to have a significant financial effect" that will help Social Security, the report said.

    But that's "a fantasy," says Michael Tanner, senior fellow at the conservative Cato Institute, adding that even if employer health insurance costs go down, the higher taxes on some employers from the law would negate any benefits.

    Tanner did concede that if employers do save money on health care, they would pay out some of the money in higher wages. "But I think this report is getting a little bit optimistic," he said.

    Administration officials said they expect employers to pay higher wages if their insurance costs go down because they know the reverse is true: When employers face higher health insurance costs, they hold down or lower wages as a result.

    The benefits from the new health law provided some of the only bright lights in the new report on Social Security. The report said the short term outlook for the program has worsened because of the "deeper recession than was projected last year."

    Oh, and remember last year, when the trustees said the Medicare trust fund would run out in 2017 – even sooner than previously projected?

    Today, they pushed the clock back and said it would last until 2029. But "only if the government achieves significant savings in health care."

    Update: A U.S. Treasury official tells Shots the government figures that under  the new health law, the average worker will see a $50 increase in annual pay. Its that pay hike that will help boost Social Security and Medicare payroll taxes.

    Copyright 2023 Kaiser Health News. To see more, visit Kaiser Health News.

    Phil Galewitz