Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Insurance Premium Tax Draining Your Paycheck
Transcript
- Lucas: If walking through the economy with us has made something click about where your money actually goes, you might want to know that we deliberately don't run ads on these shows. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it keeps the signal clean for both of us. Thanks for keeping it that way. Lucas: Let's get right into it. We talk a lot about whether your paycheck is big enough, but today I want to look at what happens after the check clears. Specifically, the silent drain of health insurance premiums. The latest Employment Cost Index data from April shows wages ticking up to one seventy-nine point zero, but that number includes benefits, and benefits are moving faster than base pay. Luna: Right, because when employers say they gave you a raise, they often mean their total labor cost went up, not necessarily your take-home cash. Is the gap between wage growth and benefit costs widening this year? Lucas: It is, and it’s brutal in real terms. Look at the CPI for all urban consumers sitting at three thirty-six point three as of September first. That’s up from three thirty-four point one three just two months prior. But here is the kicker: core CPI, which strips out food and energy, is even higher at three thirty-eight point nine. Prices for services, particularly healthcare services, are refusing to come down while wages are barely keeping pace. Luna: So you are telling me that even if my salary stayed flat, I would be poorer because insurance costs are eating the surplus? That feels like a structural trap rather than just bad luck. Lucas: Exactly. It is structural. The thing is, most workers think of their compensation as their gross salary. They do not factor in the employer contribution to health plans, which has been rising steadily. When you look at the median usual weekly earnings sitting at one thousand two hundred and four dollars, that looks solid until you subtract the increased cost of maintaining that safety net. You are paying more for the same coverage, or worse coverage, for the same price. Luna: I remember talking to a friend last month who switched plans and saw her premium jump by eighty dollars a month just to keep her existing doctors. She didn't get a raise to cover it. Lucas: That eighty dollars a month is nearly ten hundred dollars a year. For someone making fifty thousand a year, that is a two percent hit to disposable income before they even buy groceries. And we have to look at the broader context here. The U.S. budget deficit swelled to almost two trillion dollars for fiscal twenty twenty six, up twelve percent in a single year. This fiscal pressure often translates into less flexibility for public sector wages and benefits, which ripples into the private sector as well. Luna: Does the government intervention really affect my private company's insurance rates that much? Or is that just correlation? Lucas: It is more direct than you think. When the federal government runs a twelve percent larger deficit, it absorbs liquidity and keeps interest rates higher for longer. High rates make it expensive for hospitals and insurers to borrow money to build infrastructure or manage cash flow. Those financing costs get passed directly onto you in the form of higher premiums. It is not just corporate greed; it is macroeconomics flowing through the plumbing of the healthcare system. Luna: So the Fed holding rates steady in October isn't actually helping my wallet in the short term because those high borrowing costs are already baked into the contracts? Lucas: Precisely. Kevin Warsh and others are noting that everyone expects the Fed to hold rates, but the work is not done. The hot PPI data we saw earlier this week confirms that wholesale prices are still breaking budgets. When input costs for medical supplies and pharmaceuticals stay elevated, the final bill at the pharmacy counter stays elevated too. You cannot negotiate inflation away with patience alone. Luna: It feels like we are stuck in a loop where wages go up five percent, but healthcare goes up seven percent, so we are effectively taking a cut every year despite the headline numbers looking good. Lucas: That is the productivity paradox we touched on in previous episodes, but applied specifically to benefits. Productivity gains are supposed to lower costs, but in healthcare, they often just increase complexity and administrative overhead. The average hourly earnings for private sector workers are at thirty-seven point eight dollars, up slightly from thirty-seven point seven six. But that tiny increase is being swallowed whole by the service sector inflation. Luna: What can people actually do about this? Can they switch jobs to find better rates, or is the whole market locked? Lucas: Job switching helps, but only if you find an employer willing to absorb the cost. In this environment, many companies are freezing hiring or offering smaller salary bumps to offset benefit hikes. The real leverage comes from understanding your own risk profile. Are you over-insured? Are you paying for coverage you never use? Some workers are opting for high-deductible plans paired with health savings accounts, but that requires capital you might not have. Luna: Most people don't have the liquid cash to fund a high-deductible plan during a recessionary scare. It feels like the system penalizes caution. Lucas: It does. And we have to look at the international comparison briefly. India’s Finance Minister recently blamed easy exits and excess liquidity for equity underperformance there, which sounds similar to our domestic issue of too much money chasing too few stable assets. Here, excess liquidity has kept asset prices high but hasn't trickled down to wage growth for the middle class. The disconnect is growing. Luna: So the stock market hitting twenty six thousand on the Nasdaq doesn't help my rent or my doctor visit? Lucas: Not directly. The S&P five hundred is at seven thousand six hundred and fifty-nine, down nearly two percent over the last five days. The Dow is up slightly to fifty-two thousand, but those indices reflect corporate profits, not household balance sheets. When corporations report strong earnings, they often use that cash for buybacks or debt reduction, not for broad-based wage increases that outpace insurance inflation. Luna: It seems like the definition of 'fair wage' needs to change. Maybe it should include a guaranteed cap on benefit increases? Lucas: That is a political question, but economically, it highlights the failure of the current bargaining model. Unions fight for wages, but benefits are often negotiated separately and subject to different market forces. Without collective bargaining power on the benefit side, individual workers are exposed to volatile insurance markets. The Treasury dismissing IMF debt warnings suggests they think this fiscal mess will resolve itself, but for you, it resolves as higher monthly deductions. Luna: I worry that by the time the data catches up, people have already left the workforce or stopped investing in their futures because they feel broke. Lucas: That is the long-term danger. If purchasing power erodes consistently, labor supply shrinks. We saw hints of this with the JOLTS data and the NFP reports earlier this year. Employers are struggling to fill roles not just because of skills gaps, but because the total compensation package no longer meets the cost of living baseline. The gap between the Employment Cost Index and actual consumer spending power is the story of twenty twenty six. Luna: So when you say the ECI is one seventy-nine, that number is misleading if I don't adjust it for the specific premium hikes in my industry? Lucas: Correct. It is an average. In tech and finance, benefits might be more generous, but in retail and hospitality, where margins are thin, the premium hike is a direct cut to your net worth. You have to look at your own pay stub, not the national average. If your wage went up three percent but your insurance went up five percent, you lost ground. Period. Luna: That is a sobering way to end the day. Just check the fine print on your next statement. Lucas: Do it. And ask your HR department exactly how much the employer contribution changed this year. You might be surprised to learn that your raise was entirely absorbed by the cost of keeping you healthy. The economy is complex, but your personal bottom line is simple arithmetic. Luna: Arithmetic that doesn't lie. Thanks, Lucas. Lucas: Always. Let's see if the PCE data next month gives us any relief, or if this trend holds firm. Luna: I doubt it will be easy. Stay sharp.