Michelle Miller on Thursday, Aug. 16th
One of the most interesting side effects of the Obamacare debate has been the reporting on the history of health insurance in America, and how it came to be so predominately employer-based. The NY Times gave a great overview of it here, but the long and short of it is that healthcare was a fringe benefit that companies offered to employees to make their compensation packages more attractive after the government implemented wage caps during World War II. It was a tax-free benefit to employees that came, over time, to be standard practice.
I just had lunch at Google. Earlier this week I had lunch at Facebook. Guess what parallel I couldn’t help drawing?
The swooning reports of visits to Google are plentiful enough on the blogosphere that I don’t think I need to add my prose. (Suffice it to say, it would have included Wagyu beef sushi and chocolate fondant). But what’s missing from all the glowing reports on Google perks is a discussion of how Google’s fringe benefit precedent is affecting Silicon Valley, and how this all might be the start of an employer-based healthcare replay.
Here’s what I mean. Like many others in Silicon Valley, I split my time working between offices in San Francisco and the Peninsula. I get in around 7:30 and leave around 6:30; I live alone and don’t cook much, both because I’m not very good at it and I’ve found cooking for one is a lot of trouble for insignificant financial benefit.
So, on a typical weekday, my budget looks something like this:
- Breakfast: $2
- Coffee: $3
- Lunch: $11
- Afternoon snack: $2
- Dinner: $12 take-out
- Gas for round-trip drive to/from city: $22
- Parking: $20 San Francisco / $12 Palo Alto
- Gym Membership: $3.67 ($110 / month)
- Massage Envy Membership: $2.83 (with tip, $85 / month)
Doing the math, I therefore net out around $67 per day, post-tax, assuming no after-work drinks, restaurant meals, or frozen yogurt splurges. Pre-tax, that’s $83 for me, having recently bumped into six-digit salary territory. Before I go any further, please don’t misunderstand me: I’m not pulling a “poor me” on my salary or taxes, nor am I suggesting there aren’t a lot of things I could do to trim my budget. I know I didn’t have to join a nice gym, could make coffee at home, and reduce that $45 to $20 if I took the Caltrain and walked two miles.
The point I’m trying to make is, my daily routine isn’t a great deal different from a lot of professionals my age at Google. The difference? They take the Google shuttle, work out at the Google gym, sign up for a massage with a Google therapist, and eat all their meals at the Google cafeteria.
Two obvious caveats here:
1. Googlers don’t have the freedom to choose their vendors: if employees want the free service, they have to accept what Google supplies
2. Googlers’ salaries are lower: Several years ago I spoke with Google about a position. When we discussed salary, HR explained it was lower than market rates, but when I factored in all that I no longer had to spend, it was a great package.
To the first point:
For Google employees comparing alternatives, it’s really a non-issue: the Google gym is nicer than my Equinox; the Google massage therapist better than mine; the shuttle has Internet, which my car lacks; and the Google cafeteria lunch I just ate would easily have cost $35 in downtown SF.
That premium won’t last forever. After Google went public, shareholder pressure prompted cost trimming, including putting a stop to free childcare. Other Silicon Valley companies have set lower standards from the outset: while plentiful, the lunches at the likes of Facebook and Palantir don’t quite live up to the organic gourmet of the mothership.
I wasn’t around in the 1950s, but something tells me the health care that companies provided back then was probably better than my current public-company employer offering.
To the second point:
You know what comes with lower salaries? Lower taxes! Let’s go back to my earlier math. That $83 per day adds up to $20,860 per annum after accounting for two weeks vacation (250 working days). Let’s say my salary is $100,000. That means I could have a $79,000 salary at Google that was basically equivalent in supporting my lifestyle.The difference? At $100,000 I pay $25,000 in income tax; at $79,000, I pay $18,270. Not only am I paying on a lower total, I’m in a lower tax bracket.
Just for giggles, let’s assume the average salary at Google is $79,000 and that, on average, all of Google’s 10,000 California-based employees pay about $6,700 less in taxes than they would if they were non-Googlers buying their own food and benefits post-tax. That’s $67 million in federal and state tax revenue that isn’t being collected.
Moreover, Google pays less in corporate taxes by dolling out more in benefits. Pretty neat! But not very original.
Even if you don’t think free food at Google is the start to a slippery slope of Orwellian employer-based nutrition control, we ought to at least step back and see some parallels to the way corporations used health insurance to lure better talent while avoiding government attempts to control the playing field. And as we continue to waste countless hours unraveling a nasty, nation-dividing benefit program, perhaps we’d be wise to check if we’re not starting it all up again under a different name.
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