Who Pays?


WASHINGTON — Senator Richard Bryan, D-Nev., tells a story about an irate constituent. At a town-hall meeting, the woman raged, ''I am mad as hell. The government caused the savings-and-loan problem; the government ought to clean it up. I don't think taxpayers ought to foot the bill!''

Similarly, the notion that employers or government pay for health care is an outright fallacy. People pay for health care -- in forgone cash wages exchanged for fringe benefits, in taxes for government services, and in direct out-of-pocket expenditures. We will still pay after health-care reform. What we are debating is how to divide up the payments among those three channels.

Universal health-insurance coverage is an admirable goal: Everyone benefits and everyone must pay. The question is how to get everyone to pay? There are only three ways to finance that goal: employer mandates, individual mandates or a single-payer system.

Employer mandates are being proposed because they are viewed as the most politically expedient way to achieve universal coverage. They are inefficient. Analyses show that one-third to one-half of the ''employer'' subsidies provided under the president's plan would go to families with income at or above the median. Employer mandates will create perverse incentives to segregate the work force into lower-wage and higher-wage groups. But because of the myth that employers would pay for an employer mandate, it offers politicians the chance to promise constituents more benefits and pretend that someone else will pay.

The myth defies logic. Health benefits are a part of compensation. Employers compute labor costs on the basis of cash wages plus fringe benefits. You consider cash and non-cash compensation when you accept employment. Employers are not Santa Claus. They pay for employee health insurance for the same reason they pay wages and salaries -- because it is necessary to attract and keep employees.

If all employers pass on higher health-care costs in higher prices, the purchasing power of employees is eroded by inflation. If employers reduce their profits below sustainable levels to pay higher costs, they go out of business. Other options require juggling labor costs, e.g. holding down cash raises, scaling back health-insurance coverage or other benefits, hiring fewer workers. That is why many employers oppose employer mandates. They do not want to lose control over an important and growing chunk of compensation.

Business health spending was under 2 percent of total compensation in 1965. By 1991, it was approaching 8 percent. Between1965 and 1991, total real per-capita compensation grew almost 18 percent. Wages and salaries grew only 7 percent, but employer health expenditures grew 452 percent! Most employees are not even aware that they have received big raises in the form of higher-cost health-care benefits.

Since employees pay for their benefits, debating whether the law should require employers to pay 80 percent or 50 percent of employee health insurance is nonsense. An ''employer'' mandate is really an employee mandate. Under an employer mandate, as with an individual mandate or a single-payer system, you will not be able to choose to take less of your income in health benefits, and more of your income in cash for use on other goods like housing, food, education or a new car.

An employer mandate does not even end cost shifting. It simply rearranges the shifts. Some employers, whom reform defines as unable to ''afford'' the mandate, would receive federal subsidies. Subsidies come from taxpayers. Everyone would pay additional taxes to subsidize the compensation of those who work in certain small businesses. Taxes may go up. Health-insurance premiums may not go up as fast as they would have. On average, it is a wash.

Most health-policy wonks, economists and even some politicians know that employees pay for their health benefits. Privately, many will concede employer mandates are the least-favored policy option for achieving universal coverage. Rather than undertaking what is judged to be an impossible task -- educating the American public about the merits of the alternatives -- some of our leaders appear to have decided that the ends, universal coverage, justifies the means.

Achieving universal, affordable health care requires us to changeour behavior and our expectations. Are we willing to make those changes? To answer intelligently, we must be fully informed about the consequences of the policies we are being asked to accept. Are we more likely to be willing to make the tough decisions that will be necessary to keep health care affordable if we think we are paying $2,500 per household for health care or if we know we are paying $9,600?

An employer mandate hides the real cost of health care. Where, then is its virtue?

Carol Cox Wait is president and Susan Tanaka is vice-president of the Committee for a Responsible Federal Budget.

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