Who Really Pays for Health Care?
The Myth of “Shared Responsibility”
Ezekiel J. Emanuel, MD, PhD
Victor R. Fuchs, PhD
WHEN ASKED WHO PAYS FOR HEALTH CARE IN THE
United States, the usual answer is “employers,
government, and individuals.” Most
Americans believe that employers pay the
bulk of workers’ premiums and that governments pay for
Medicare, Medicaid, the State Children’s Health Insurance
Program (SCHIP), and other programs.
However, this is incorrect. Employers do not bear the cost
of employment-based insurance; workers and households
pay for health insurance through lower wages and higher
prices. Moreover, government has no source of funds other
than taxes or borrowing to pay for health care.
Failure to understand that individuals and households actually
foot the entire health care bill perpetuates the idea
that people can get great health benefits paid for by someone
else. It leads to perverse and counterproductive ideas
regarding health care reform.
The Myth of Shared Responsibility
Many sources contribute to the misperception that employers
and government bear significant shares of health care
costs. For example, a report of the Centers for Medicare &
Medicaid Services states that “the financial burden of health
care costs resides with businesses, households, and governments
that pay insurance premiums, out-of-pocket costs,
or finance health care through dedicated taxes or general
revenues.”1ANewAmerica Foundation report claims, “There
is growing bipartisan support for a health system based on
shared responsibility—with the individual, employers, and
government all doing their fair share.”2
The notion of shared responsibility serves many interests.
“Responsibility” is a popular catchword for those who
believe everyone should pull their own weight, while “sharing”
appeals to those who believe everyone should contribute
to meeting common social goals. Politicians welcome
the opportunity to boast that they are “giving” the people
health benefits. Employers and union leaders alike want
workers to believe that the employer is “giving” them health
insurance. For example, Steve Burd, president and chief executive
officer of Safeway, argued that decreasing health care
costs is critical to his company’s bottom line—as if costs come
out of profits.3 A highly touted alliance between Wal-Mart
and the Service Employees International Union for universal
coverage pledged that “businesses, governments, and individuals
all [must] contribute to managing and financing
a new American health care system.”4
The Massachusetts health care reform plan is constructed
around “shared responsibility.” The rhetoric of
health reform proposals offered by several presidential candidates
helps propagate this idea. Hillary Clinton, for instance,
claims that her American Health Choices plan “is
based on the principle of shared responsibility. This plan
ensures that all who benefit from the system contribute to
its financing and management.”5 It then lists how insurance
and drug companies, individuals, clinicians, employers,
and government must each contribute to the provision
of improved health care.
With prominent politicians, business leaders, and experts
supporting shared responsibility, it is hardly surprising
that most Americans believe that employers really bear
most of the cost of health insurance.
The Health Care Cost–Wage Trade-off
Shared responsibility is a myth. While employers do provide
health insurance for the majority of Americans, that
does not mean that they are paying the cost. Wages, health
insurance, and other fringe benefits are simply components
of overall worker compensation. When employers provide
health insurance to their workers, they may define the
benefits, select the health plan to manage the benefits, and
collect the funds to pay the health plan, but they do not bear
the ultimate cost. Employers’ contribution to the health insurance
premium is really workers’ compensation in another
form.
This is not a point merely of economic theory but of historical
fact. Consider changes in health insurance premiums,
wages, and corporate profits over the last 30 years. Premiums
have increased by about 300% after adjustment for
inflation. Corporate profits per employee have flourished, with
inflation-adjusted increases of 150% before taxes and 200%
after taxes. By contrast, average hourly earnings of workers....
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