Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of Health Insurance
Transcript
- Lucas: So Luna, I want to start with a number that doesn't get nearly enough attention. The employment cost index for wages hit 179 in the second quarter of this year, up from 177.5. That's a solid gain, and it's part of a story we've been tracking all summer on this show — raises finally outpacing a lot of everyday prices. Luna: Right, and we've covered everything from groceries to car insurance. But there's one big category we haven't touched yet, and it's the one that eats the biggest chunk of many paychecks. Lucas: Exactly — health insurance. For years, that was the exception. Premiums kept climbing faster than wages, no matter what the overall inflation rate was doing. But something shifted recently, and I think it's worth digging into why. Luna: Is it actually shifting, or is it just a blip? Because my sense is that healthcare costs are still brutal. Lucas: Fair question. Let's look at the data. Average hourly earnings for private workers were $37.60 in June, up from $37.51 a month earlier. That's a steady upward trend. Meanwhile, the CPI actually ticked down to 332.6 from 333.98. So on paper, wages are climbing while overall prices are cooling — that's the wage-price gap narrowing. Luna: But health insurance isn't in the CPI the way you'd think, right? It's mostly employer-sponsored, so it doesn't show up directly in most workers' paychecks. Lucas: That's the crucial point. For most people, health insurance costs are deducted from their gross pay, and the employer pays a big share. So the real question is: what's happening to the total compensation package, not just the wage number? Luna: And that's where the employment cost index gets interesting. It tracks both wages and benefits. Lucas: Right. And the benefits component includes health insurance. Over the past decade, that benefits index grew faster than wages almost every year. But in the last couple of quarters, wage growth has actually been outpacing benefit costs. That's a reversal. Luna: So you're saying the gap is narrowing because wages are growing faster, not because insurance costs are falling. Lucas: Exactly. Premiums are still rising, but they're not rising as fast as they used to, and wage growth has picked up enough to finally outpace them. The result is that your raise is finally covering the increase in your health insurance premium, with a little left over. Luna: That's a big deal. For a lot of families, health insurance was the one line item that always seemed to eat any raise they got. Lucas: And it wasn't just a feeling. The Kaiser Family Foundation has tracked this for years — since 2010, family premiums for employer-sponsored coverage have grown about 60 percent, while wages grew about 30 percent. So the average worker was effectively losing ground every year. Luna: Ouch. So what changed? Why are premiums decelerating now? Lucas: A few things. One is that overall medical inflation has cooled. Core inflation, which strips out food and energy, is at 3.3 percent — that's down from last year. And in June, the CPI actually fell month over month, which is unusual. Luna: And that feeds into what insurers expect to pay out, which sets the premiums they charge employers. Lucas: Right. Health insurance premiums are basically set a year in advance based on projected medical costs. When inflation was hot in 2022 and 2023, insurers baked in big increases. Now that inflation is cooling, those projections are getting more conservative. Luna: So it's a lagging indicator. We're finally feeling the benefit of lower inflation from a couple years ago. Lucas: Exactly. And there's another factor — the labor market. With unemployment still low, employers are competing for workers, and that means they're more willing to absorb a bigger share of premium increases rather than passing them on to employees. Luna: That makes sense. If you're trying to hire and retain people, you don't want to nickel and dime them on benefits. Lucas: So the data we're seeing — the employment cost index, average hourly earnings, the cooling CPI — all point to the same story: workers are finally getting ahead on health insurance costs. Luna: But I'm sure there are caveats. Because not everyone gets employer-sponsored coverage, and the people who buy on the individual market might have a different experience. Lucas: That's a really important point. The data we've been talking about is for employer-sponsored plans. If you're buying on the Affordable Care Act exchanges or you're uninsured, the trends are different. And even among employer plans, there's a lot of variation — some workers are in high-deductible plans where the out-of-pocket costs are still climbing. Luna: So it's not a universal win. But for the average worker with employer coverage, the tide has turned. Lucas: And that's the headline. But there's a bigger picture here that ties into the Fed's dilemma. You've got a divided Fed — some members want to keep rates high because they worry about inflation re-accelerating, and others think the evidence shows it's under control. Luna: And healthcare costs are a big part of that. If premiums start accelerating again, that would feed into core inflation and give the hawks more ammunition. Lucas: Exactly. The 10-year breakeven inflation rate is at 2.28 percent, which is actually below the Fed's 2 percent target. That suggests bond investors are pretty confident inflation is heading lower. But the recent manufacturing survey showed inflation worries 'worse than pandemic era,' so there's clearly a disconnect between what markets expect and what some businesses are experiencing. Luna: That's a fascinating divergence. And it makes the Fed's job harder. Lucas: It does. But for workers, the immediate takeaway is more positive. Your raise is finally beating the cost of health insurance — at least for the average person with an employer plan. And that's a shift that could have real implications for household budgets and consumer spending. Luna: It's a nice change of pace. And actually, this reminds me of something you said a while ago about how the show itself is sort of like a household budget — we've got to make sure the costs don't outpace the support. Lucas: Ha, I don't remember saying that, but it's true. And speaking of support — a couple of dollars a month is genuinely what keeps this podcast running. If walking through the economy with us has made something click, you can buy us a coffee at buy me a coffee dot com slash fexingo. It's not about perks or anything, it's just what lets us keep doing this ad-free. Luna: Yeah, every little bit genuinely helps us keep the lights on and the microphones working. Lucas: Alright, back to it. So we've established that the wage vs health insurance gap is narrowing. But there's a bigger question — is this a one-time correction, or is it a structural shift that could last? Luna: What's your read on that? Lucas: I think it's too early to say it's structural. A lot depends on whether medical inflation stays low. If we get another healthcare cost shock — say, a new expensive drug or a wave of chronic disease — premiums could easily re-accelerate. Luna: And also, the labor market could cool. If unemployment rises, employers might start passing on more costs again. Lucas: Right. So the current situation is positive, but fragile. Workers should enjoy it while it lasts, but they shouldn't assume it's permanent. Luna: So what should a worker actually do with this information? I mean, we can't control premiums. Lucas: Well, you can. During open enrollment, you can look at your options — maybe a high-deductible plan with a health savings account makes sense now that wages are growing. Or you can push your employer to consider a different structure. The point is, don't just accept the default plan out of inertia. Luna: That's practical advice. And it's a good example of how understanding the macro can help with the micro. Lucas: Exactly. And that's the whole point of this show — to give you the tools to navigate your own financial life, even when the numbers are moving in your favor. Luna: Well, this has been a good reminder that not every economic headline has to be doom and gloom. Lucas: No, and this one's actually worth celebrating. But we'll keep watching the data. If anything shifts, we'll be here to break it down.