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Policy Paper

Employer Health Costs In a Global Economy

A Competitive Disadvantage For U.S. Firms
May 2008 |

Increasing Employer Health Costs, Lowering U.S. Competitiveness

Although most Americans get health insurance through their employers, business leaders are increasingly united in their belief that rising health care costs threaten America’s competitiveness in the global economy. Business support for comprehensive health reform has been growing as a result.

However, economists generally believe that it is workers -- rather than employers -- who pay for health care through lower wages. Although this proposition may hold true in the long run, employers face a variety of constraints that may make it difficult for them to fully shift health costs in the short run.

Health care costs would not burden firms if they could be shifted to consumers through higher prices. But with globalization and increased competition in international markets, this is not feasible. If employers cannot fully shift health costs onto workers or into prices, then how much they pay matters.

As a percentage of payroll, the employer cost of health benefits has exploded over the past few decades. In addition, employer health costs for manufacturing firms in the United States, $2.38 per worker per hour, were much higher than the foreign trade-weighted average of $0.96 per worker per hour in 2005. Employer health costs make the United States less competitive than it could otherwise be.

A new model for health care that...

  • reforms the current insurance marketplace;
  • provides income-based subsidies; and
  • is individual, rather than employer-based,

...would enable us to finance our 21st-century health system in a more sustainable and competitive way.

For more information, read An Issue for the Front Burner, by Sarah Axeen and Elizabeth Carpenter, appearing the November 20, 2008 edition of the Philadelphia Inquirer

For the full text of the policy paper, please see the PDF attached below. A shorter issue brief outlining the employer health care burden is also included.

Issues:
If the United States is to maintain competitive in the global economy, health coverage should not rely primarily on employer financing. Thus, government and individuals will have to share more of the burden.

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