We study the contribution of health shocks to earnings inequality and uncertainty in labor market outcomes. We calibrate a life-cycle model of labor supply and savings that incorporates health shocks and endogenous treatment decisions. Our model features endogenous wage formation via human capital accumulation, employer sponsored health insurance, and means-tested social insurance. Health shocks account for 13% of lifetime earnings inequality for U.S. males, with one fifth of this due to behavioral responses. Low skill individuals with high school or less rely heavily on means tested social insurance in the presence of health shock risk. For them, behavioral responses account for 43% of the total effect of health shocks on inequality. Provision of public health insurance substantially improves health, raising wages and labor supply. Despite a substantial increase in medical costs due to moral hazard, the government expenditures minus costs on working age individuals remains unchanged when factoring in the additional revenue and lower spending on social insurance programs.