There once was a union maid

Driving to work at my unionized (no contract at the moment however) government job, I heard a story on NPR about "Cadillac" health care plans and higher wages.  Some unions, you see, have negotiated for themselves some pretty good health benefits.  They did this even though it meant sacrificing higher wages.  They must have done some math somewheres, and figured it's better to have better benefits than higher wages.  One would suppose, in any case, that they did this.  Not NPR, however.  Here is how they framed the story:


The fate of Congresss health care overhaul is unclear after this weeks election of Republican Scott Brown of Massachusetts to the U.S. Senate. One of the major issues thats been holding up the health care bill is how to pay for it. The Senate wants to impose a Cadillac tax. That is a tax on the most expensive health care plans. Executives with gold-plated plans don't like it and neither do labor unions, whose workers have generous plans. But many economists say it could help everyone in the long run. Here are Planet Moneys Chana Joffe-Walt and David Kestenbaum.

DAVID KESTENBAUM: Economists on this issue feel lonely, sad and very misunderstood.

CHANA JOFFE-WALT: Well, yeah, because economists use math and charts to make their arguments. Labor unions use emotion and advertisements featuring sympathetic characters with asthma.

Something tells me there is a chart somewhere in the union argument.  Nonetheless, the interchange that follows is hilarious.  It is a discussion between a union worker and a professor of economics, one who holds an endowed chair.  He, the professor, argues that if AT&T were forced (by the Cadillac tax) to abandon "expensive" health benefits, they would increase wages.  The union maid argued there was no evidence of that particular entailment.  Unable to provide any, the professor changed tactics. 

JOFFE-WALT: And to Valerie, the idea that she should be taxed in the first place is just insulting to her. She has given up wages over the years to get better benefits, great benefits she says she needs.

KESTENBAUM: Steve pauses, and says well, maybe not.

Prof. STEARN: When was the last time you had a medical emergency?

Ms. STANLEY: I went to the ER seven years ago when I broke my arm.

Prof. STEARN: It sounds like you dont need the health benefit plan that you have. On the whole, my guess is youre losing money on your health insurance. You would benefit from having a worse health benefit plan and taking that extra money and getting higher wages.

The sheer dumbness of that argument boggles the mind.  But the amazing thing is that the professor seems not to understand that someone must have done some math and figured generous benefits were better for the workers–even if they weren't necessarily going to have a medical emergency.  Indeed, if one knows anything about family medical costs, incrementally higher wages mean nothing–nothing–in comparison to the costs of one serious (and eventually likely) medical episode.

3 thoughts on “There once was a union maid”

  1. Oh, this is indeed a classic exchange. I hate to be blunt but Steven Stearn (“I’m the Merrill Bankard Professor of Economics at the University of Virginia”) is an idiot.

    Prof. STEARN: You would benefit from having a worse health benefit plan and taking that extra money and getting higher wages.

    Ms. STANLEY: I disagree.

    Prof. STEARN: But you should change your mind.

    Whatever you do, Ms. Stanley, don’t listen to Prof. Stearn.

  2. The professor seems to be confusing what would be reasonable for (for lack of a better word) an institution with what would be reasonable for an individual. From an institutional point of view, an aggregate reduction in benefits scales with an aggregate gain in wages, meaning that the financial trade-off appears relatively equal. That trade-off might be attractive from this point of view if the cost of maintaining these benefits is greater than the actual cost of services rendered. Then, getting back wages seems to make sense, since this scenario makes it appear that people are throwing away money for no reason on their "Cadillac" plans.
    However, from an individual's perspective, there is no direct comparison between benefits and wages. The risk of incurring catastrophic healthcare costs far outweighs the marginal wage gains provided by reduced benefits, even if an actuary were able to show you the probabilities of developing a serious illness, or getting into a horrific accident. That's the point of having insurance. Most people that have it will never get the money back in health care services that they put into the pool. Some will get far more back than they put in. Should we call the former suckers and the latter free-riders?

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