[Congressional Record (Bound Edition), Volume 154 (2008), Part 5]
[Senate]
[Pages 6133-6134]
[From the U.S. 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 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

[[Page 6134]]

     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 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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