Workers, not firms, pay for healthcare

April 22, 2012 at 5:33 PM
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WASHINGTON, April 22 (UPI) -- U.S. employers don't pay for health insurance, workers do; the employer pays for health insurance from money allocated for payroll, researchers say.

Jonathan Kolstad, assistant professor at The Wharton School of the University of Pennsylvania, and Amanda Kowalski, an Okun-Model Fellow in Economic Studies, said when making hiring decisions, a company focuses on the total amount it spends on compensation, not the breakdown between salary and other benefits.

Health insurance as a part of employee compensation became popular during World War II when workers were needed for the war effort and the U.S. government instituted wage restrictions to reduce inflation.

Employers who needed to attract labor provided fringe benefits, such as pensions, health insurance, paid holidays and vacations. These benefits were considered non-inflationary, because they were not paid in cash and did not violate the wage ceiling imposed by the government.

Today, when offering jobs to potential employees, employers reduce salary to account for the contributions they must make to health insurance premiums, the researchers said.

Potential employees then have to decide whether they are willing to work for lower wages and have health insurance, the researchers say.

"Given the fact that employer-sponsored health insurance is the primary source of healthcare coverage for most Americans age 65 and under most employees are," the researchers said in a Brookings Institute report. "Of course, the Affordable Care Act is not focused on those people. Instead, the individual mandate is intended to provide a nudge to people who have been unwilling or unable to obtain health insurance," because employers don't offer it or because it is too expensive to buy as an individual.

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