The Progressive Ensign

insights and analytics to build an economy that works for all

Category: Employees

Consumers Squeezed Between Debt and Stagnant Wages

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Image: americanprogress.org

The Federal Reserve just reported that consumer debt related to auto and student loans are at the highest level they have ever been since 1970 (2nd chart).  As we have noted wages have stagnated since the Great Recession with 90 % of the income gains going to the top 10 % in income.  The middle class has been left out of the mainstream of the economic recovery over the past 10 years.

Sources: The Federal Reserve Bank – St. Louis, The Wall Street Journal, The Daily Shot – 5/8/18

While revolving debt from credit cards has fallen (top chart) since the recession, non revolving debt for autos and student loans has soared.   Consumers are caught in a squeeze between debt and flat wages.  The Commerce Department reported on 1st Quarter GDP noted that consumer spending had decelerated during the quarter.  Sentiment surveys have also shown a reduction in buying plans due to trade issues and any benefit from the tax cuts being lost due to rising prices from tariffs.  Banks have posted 7 straight months of an increasing percentage of charge offs on bad loans where consumers are not making payments on non-mortgage debt.

As interest rates go up, payments grow larger per month, with the added tightening of increased prices.  The middle class is caught trying to maintain their standard of living by borrowing money to mitigate flat wages.

Next Steps –

There are two sides to the squeeze – increasing wages and reducing loan payment size and principal.

We have endorsed Sen. Cory Booker’s bill called the Worker Dividend Act to share billions of dollars in stock buyback dollars 50/50 with employees.  We see a need for incentives for employers to share management extreme wealth now at 300 times average worker salary with the line staff.  Or if they can’t do it with incentives we like the City of Portland’s plan to require corporations share their funding above the 150 times level with employees. In our blog about why Wages Are Stuck we outline a series of steps including: placing workers on Boards, ending outsourcing overseas, end H1-B low wage visas, allow repatriated funds be brought back to the US only for wages, productivity or training investments, end stock buybacks and raise employee wages with the funds, breakup anti-competitive oligarchies of huge corporations to create more competition and jobs, balance the recruiting and hiring process for candidates, and offer incentives for employee training and development.

On the loan side, we recommend that student loan rates be brought back to reasonably fair rates as a percentage of the Fed Funds rate, and offer a series of forgiveness programs for universal service, community teaching and caregiving.  For auto loans, we request that the Consumer Finance Protection Bureau evaluate major bank auto loans to ensure they are fair and do not have hidden fees or unusual interest rate riders.

Employers Not Passing Along Drug Cost Rebates

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Fridays we spotlight in more depth solutions to issues we have identified. Please right click on images to see them larger in a separate tab.)

Image: Kaiser Health Network

Almost 70 % of all employers who are the payers for employee drug insurance programs do not pass along the rebates they receive from insurers who receive them from drug manufacturers. Employers say they use the funds to reduce costs.  Though we do see corporations passing along the costs to employees with higher deductibles according to the Kaiser Family Foundation research report discussed in our blog on Health Insurers and keeping the rebates to themselves.

Source: Pharmacy Benefit Management Institute, The Wall Street Journal – 3/6/18

What is really happening is drug insurers like United Healthcare, are offering discounts to employers who can pass them along to employees but they don’t pass the dollars along. Instead they say they put them into reducing the costs of drugs overall.  Yet, that is not happening, as a Kaiser survey found that with drug costs going up 58 % from 2006 to 2016 yet the cost of worker contributions went up 78 %.  Companies are picking up a health insurance reduction premium saving it for themselves of 20 %.

When companies reduce health costs, the result is increased profits (made from increasing costs to employees), which increase the value of company stock which is held mostly by executives and shareholders who are in the top 10 % in income.

Next Steps:

We applaud that United Healthcare is going to begin offering next year direct to consumer drug rebates for a subset of their employer based programs.  Yet, that not enough, we see a need for legislation calling for transparency in drug pricing and insurance similar to the laws in place on bank mortgages disclosing the real cost of a home loan.  Second, we recommend legislation  that requires drug insurers pass along any drug manufacturer rebates, discount or other cost savings directly to consumers to prevent the cost reductions from being syphoned off by employers.

In the end, the added layer of insurers we don’t need when we already have the Medicare program in place for 55 million Americans and 44 million of those are enrolled in Medicare Part D for drug insurance.  We have one drug formulary in Medicare, let’s use it, let the Medicare administration to directly negotiate drug prices, end stock buybacks by drug companies and direct advertising of prescriptions drugs, then we would see a significant reduction in drug costs.

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