Mathematical proof

2 comments October 30th, 2007

Ever hear of the Rule of 72? That’s the mathematical formula that determines how long it will take for a sum to double based on its annual percentage growth. You divide 72 by the percentage rate and find out the number, in years, it will take to double. So if your wages grow by 3 percent each year, then it will take you 24 years to double your salary (72 / 3 = 24). If your stock portfolio grows by 8 percent every year, it will take 9 years to double it (72 / 8 = 9). You get the idea.

A newsletter from the Economic Research Institute, a research firm that does salary surveys for human resources benchmarking, points out an obvious mathematical consequence of this axiom: If health care premiums continue to rise at 10 percent a year and wages rise at 3 percent, it’s only a matter of time before all the money that a company spends on employee compensation will be eaten up by paying for benefits.

Of course, it isn’t certain that employer-sponsored health care costs will rise at the same explosive rates we’ve seen since 2000, but it is certain that the current growth and its impact on employers will make paying for health care the biggest domestic issue in next year’s presidential election.