[Congressional Record Volume 154, Number 60 (Wednesday, April 16, 2008)]
[Senate]
[Pages S3074-S3076]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
HEALTH CARE
Mr. WYDEN. Madam President, Dr. Ezekiel Emanuel and Dr. Victor Fuchs,
physicians and distinguished scholars, have recently written a
particularly important article that I wish to bring to the attention of
the Senate.
These two gentlemen have a long and impressive track record on the
issue of reforming our Nation's broken health system, and their recent
article in the Journal of American Medicine (JAMA), ``Who Really Pays
for Health Care? The Myth of Shared Responsibility,'' is one that every
Senator should reflect on.
Drs. Emanuel and Fuchs assert in their article that when millions of
Americans say that financing health care is a ``shared responsibility''
between ``employers, government, and individuals'' they are incorrect.
The authors say there is actually no such thing as ``shared
responsibility''--health costs in America come out of the hides of
individuals and households. Emanuel-Fuchs point out, for example, that
money employers spend on health care for their workers would otherwise
go to workers' salaries and that Government cannot secure funds at all
without reaching into our wallets for tax payments or money we lend to
them.
The work of these two scholars is particularly relevant because
recent public opinion polls show significant numbers of Americans would
be content ``to just keep the health care they have.'' This seems
understandable. If
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you are not a regular reader of JAMA, you are likely to miss Dr.
Emanuel and Dr. Fuchs describe how your take-home pay is going to keep
going down without health reform that makes health care more
affordable.
If Americans are kept in the dark about how much of the money spent
on employer-based health care produces little value, naturally, during
these times of economic uncertainty, many will be glad to just keep the
care they have got.
Senator Bennett and I, along with six other Democrats and six other
Republicans, believe it is time to modernize the employer-employee
relationship in health care. If employers choose to offer health
coverage in the future, and workers know how much money they are
spending and can choose between the employer's health coverage and
private sector alternatives, we are fine with that. Workers should,
however, have the opportunity as Dr. Emanuel and Dr. Fuchs put it to
``consider alternatives''. Americans can get more value from the 2.3
trillion dollars being spent this year on their health care, and this
article is an important part of the discussion as to how to bring that
about.
Mr. President, I ask unanimous consent that the article by Drs.
Emanuel and Fuchs be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Who Really Pays for Health Care?
the myth of ``shared responsibility''
(By Ezekiel J. Emanuel, M.D., Ph.D. and Victor R. Fuchs, Ph.D.)
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.'' A
New America 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.''
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. 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.
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.'' 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 past 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 in private nonagricultural industries
have been stagnant, actually decreasing by 4% after
adjustment for inflation. Rather than coming out of
corporate profits, the increasing cost of health care has
resulted in relatively flat real wages for 30 years. That
is the health care cost--wage trade-off.
Even over shorter periods, workers' average hourly earnings
fluctuate with changes in health care expenditures (adjusted
for inflation). During periods when the real annual increases
in health care costs are significant, as between 1987 and
1992 and again between 2001 and 2004, inflation-adjusted
hourly earnings are flat or even declining in real value. For
a variety of reasons, the decline in wages may lag a few
years behind health care cost increases. Insurance premiums
increase after costs increase. Employers may be in binding
multiyear wage contracts that restrict their ability to
change wages immediately. Conversely, when increases in
health care costs are moderate, as between 1994 and 1999,
increases in productivity and other factors translate into
higher wages rather than health care premiums.
The health care cost--wage trade-off is confirmed by many
economic studies. State mandates for inclusion of certain
health benefits in insurance packages resulted in essentially
all the cost of the added services being borne by workers in
terms of lower wages. Similarly, using the Consumer
Expenditure Survey, Miller found that ``the amount of
earnings a worker must give up for gaining health insurance
is roughly equal to the amount an employer must pay for such
coverage.'' Baicker and Chandra reported that a 10% increase
in state health insurance premiums generated a 2.3% decline
in wages, ``so that [workers] bear the full cost of the
premium increase.'' Importantly, several studies show that
when workers lose employer-provided health insurance, they
actually receive pay increases equivalent to the insurance
premium.
In a review of studies on the link between higher health
care costs and wages, Gruber concluded, ``The results [of
studies] that attempt to control for worker selection, firm
selection, or (ideally) both have produced a fairly uniform
result: the costs of health insurance are fully shifted to
wages.''
the cost--public service trade-off
A large portion of health care coverage in the United
States is provided by the government. But where does
government's money for health care come from? Just as the
ultimate cost of employer-provided health insurance falls to
workers, the burden of government-provided health coverage
falls on the average citizen. When government pays for
increases in health care costs, it taxes current citizens,
borrows from future taxpayers, or reduces other state
services that benefit citizens: the health care cost--public
service trade-off.
Health care costs are now the single largest part of state
budgets, exceeding education. According to the National
Governors Association, in 2006, health care expenditures
accounted for an average of 32 percent of state budgets,
while Medicaid alone accounted for 22 of spending. Between
2000 and 2004, health care expenditures increased
substantially, more than 34 percent with Medicaid and SCHIP
increasing more than 44 percent. These increases far exceeded
the increase in state tax receipts. In response, some states
raised taxes, others changed eligibility requirements for
Medicaid and other programs, and still others reduced the
fees and payments to physicians, hospitals, and other
providers of health care services.
However, according to a Rockefeller Institute of Government
study of how 10 representative states responded, probably the
most common policy change was to cut other state programs,
and ``the program area that was most affected by state budget
difficulties in 2004 was public higher education. . . . On
average, the sample states projected spending 4.5 percent
less on higher education in FY 2004 than in FY 2003 and
raised tuition and fees by almost 14 percent on average. In
other words, the increasing cost of Medicaid and other
government health care programs are a primary reason for the
substantial increase in tuition and fees for state colleges
and universities. Middle-class families finding it more
difficult to pay for their children's college are unwittingly
falling victim to increasing state health care costs. Not an
easy--but a necessary--connection to make.
policy implications
The widespread failure to acknowledge these effects of
increasing health care costs on wages and on government
services such as education has important policy implications.
The myth of shared responsibility perpetuates the belief that
workers are getting
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something while paying little or nothing. This undercuts the
public's willingness to tax itself for the benefits it wants.
This myth of shared responsibility makes any reform that
removes employers from health care much more difficult to
enact. If workers and their families continue to believe that
they can get a substantial fringe benefit like health
insurance at no cost to themselves, they are less likely to
consider alternatives. Unless this myth is dispelled, the
centerpiece of reform is likely to be an employer mandate.
This is regrettable and perpetuates the widely recognized
historical mistake of tying health care coverage to
employment. Furthermore, an employer mandate is an
economically inefficient mechanism to finance health care.
Keeping employers in health care, with their varied interests
and competencies, impedes major changes necessary for
insurance portability, cost control, efficient insurance
exchanges, value-based coverage, delivery system reform, and
many other essential reforms. Employers should be removed
from health care except for enacting wellness programs that
directly help maintain productivity and reduce absenteeism.
Politicians' rhetoric about shared responsibility reinforces
rather than rejects this misconception and inhibits rather
than facilitates true health care reform.
Not only does third-party payment attenuate the incentive
to compare costs and value, but the notion that someone else
is paying for the insurance further reduces the incentive for
cost control. Getting Americans invested in cost control will
require that they realize they pay the price, not just for
the deductibles and co-payments, but for the full insurance
premiums too.
Sustainable increases in wages require less explosive
growth in health care costs. Only then will increases in
productivity show up in higher wages and lower prices, giving
a boost to real incomes. Similarly, the only way for states
to provide more support for education, environment, and
infrastructure is for health care costs to be restrained.
Unless the growth in Medicaid and SCHIP are limited to--or
close to--revenue increases, they will continue to siphon
money that could be spent elsewhere.
Conclusion
Discussions of health care financing in the United States
are distorted by the widely embraced myth of shared
responsibility. The common claim that employers, government,
and households all pay for health care is false. Employers do
not share fiscal responsibility and employers do not pay for
health care--they pass it on in the form of lower wages or
higher prices. It is essential for Americans to understand
that while it looks like they can have a free lunch--having
someone else pay for their health insurance--they cannot. The
money comes from their own pockets. Understanding this is
essential for any sustainable health care reform.
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