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Wage and Benefit Changes in Response to Rising Health Insurance

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Author Info
Dana Goldman (RAND Corporation and NBER)
Neeraj Sood (RAND Corporation and NBER)
Arleen Leibowitz (UCLA School of Public Policy and Social Research)

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Abstract

Many companies have defined-contribution benefit plans requiring employees to pay the full cost (before taxes) of more generous health insurance choices. Research has shown that employee decisions are quite responsive to these arrangements. What is less clear is how the total compensation package changes when health insurance premiums rise. This paper examines employee compensation decisions during a three-year period when health insurance premiums were rising rapidly. The data come from a single large firm with a flexible benefits plan wherein employees explicitly choose how to allocate compensation between cash wages and other benefits. Under such an arrangement, higher health insurance premiums must induce changes in the composition of total compensation-either in lower after-tax wages or in decreased contributions to other benefits. The results suggest that about two-thirds of the premium increase is financed out of cash wages and the remaining one-thirds is financed by a reduction in benefits.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Forum for Health Economics & Policy.

Volume (Year): 8 (2005)
Issue (Month): 1 ()
Pages: 1011-1011
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Handle: RePEc:bep:fhecpo:v:8:y:2005:i:1:p:1011-1011

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  1. David M. Cutler, 2002. "Employee Costs and the Decline in Health Insurance Coverage," NBER Working Papers 9036, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March. [Downloadable!] (restricted)
  3. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May. [Downloadable!] (restricted)
  4. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June. [Downloadable!] (restricted)
  5. Boskin, Michael J, et al, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter. [Downloadable!] (restricted)
  6. Brittain, John A, 1971. "The Incidence of Social Security Payroll Taxes," American Economic Review, American Economic Association, vol. 61(1), pages 110-25, March. [Downloadable!] (restricted)
  7. Richard B. Freeman, 1981. "The effect of unionism on fringe benefits," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 34(4), pages 489-509, July.
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