The Fall of Government Unions And Slowing Health Costs

An op-ed in the Wall Street Journal (available by subscription) about a recent legal decision on retiree health benefits shines the light on is a reason for optimism about the slow growth in health spending.

As readers know, I look pretty closely at the economic data from various government agencies, and they are starting to show an uptick in health spending and prices. However, a recent Supreme Court decision weakens the power of government unions to demand exorbitant retiree health benefits, according to Robert C. Pozen and Ronald J. Gilson.

In M&G Polymers vs. Tackett, the Supreme Court found that retiree health benefits in union contracts can be re-negotiated if there is any ambiguity in the contracts. Pozen and Gilson suggest that these contracts are, generally, poorly written.

In 2014, a scholarly paper estimated the liability of retiree health benefits obligated by state and local governments alone to exceed $1 trillion. Many public-sector retirees, especially in the public-safety branches, retire as early as 50, before they are eligible for Medicare.

Government unions have preferred to tip the scales in favor of health benefits for both current employees and retirees, versus salary and pension, because the former are easier to disguise from state and local taxpayers.

This means that government employees and retirees have an artificially enhanced, especially high demand for health care, driving up prices and utilization. Their premiums are much higher than private-sector firms’ premiums.

Many factors are shrinking the power of government unions, especially right-to-wok laws in a growing number of states, and Obamacare’s Cadillac tax. An added benefit (recognized only in this blog, as far as I know), is that weaker government unions will put downward pressure on health prices and consumption.

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