Who Really Pays for Health Insurance? The Incidence of Employer-Provided Health Insurance with Sticky Nominal Wages
AbstractThis paper addresses two seeming paradoxes in the realm of employer-provided health insurance: First, businesses consistently claim that they bear the burden of the insurance they provide for employees, despite theory and empirical evidence indicating that workers bear the full incidence. Second, benefit generosity and the percentage of premiums paid by employers have decreased in recent decades, despite the preferential tax treatment of employer-paid benefits relative to wages—trends unexplained by the standard incidence model. This paper offers a revised incidence model based on nominal wage rigidity, in an attempt to explain these paradoxes. The model predicts that when the nominal wage constraint binds, some of the burden of increasing insurance premiums will fall on firms, particularly small companies with low-wage employees. In response, firms will reduce employment, decrease benefit generosity, and require larger employee premium contributions. Using Current Population Survey data from 2000–2001, I find evidence for this kind of wage rigidity and its associated impact on the employment and premium contributions of low-wage insured workers during a period of rapid premium growth. Copyright Springer Science+Business Media, Inc. 2005
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal International Journal of Health Care Finance and Economics.
Volume (Year): 5 (2005)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=106603
employer-provided health insurance; wage stickiness; premium contributions;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gruber, Jonathan & McKnight, Robin, 2003.
"Why did employee health insurance contributions rise?,"
Journal of Health Economics,
Elsevier, vol. 22(6), pages 1085-1104, November.
- Jonathan Gruber & Robin McKnight, 2002. "Why Did Employee Health Insurance Contributions Rise?," NBER Working Papers 8878, National Bureau of Economic Research, Inc.
- Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
- repec:pri:indrel:735 is not listed on IDEAS
- Jonathan Gruber & Alan B. Krueger, 1990.
"The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance,"
NBER Working Papers
3557, National Bureau of Economic Research, Inc.
- Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002.
"How Much Should We Trust Differences-in-Differences Estimates?,"
NBER Working Papers
8841, National Bureau of Economic Research, Inc.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
- Eissa, Nada & Liebman, Jeffrey B, 1996.
"Labor Supply Response to the Earned Income Tax Credit,"
The Quarterly Journal of Economics,
MIT Press, vol. 111(2), pages 605-37, May.
- Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
- Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
- Dranove, David & Spier, Kathryn E. & Baker, Laurence, 2000. "'Competition' among employers offering health insurance," Journal of Health Economics, Elsevier, vol. 19(1), pages 121-140, January.
- Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
- Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
- Jeske, Karsten & Kitao, Sagiri, 2009.
"U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?,"
Journal of Monetary Economics,
Elsevier, vol. 56(2), pages 210-221, March.
- Karsten Jeske & Sagiri Kitao, 2007. "U.S. tax policy and health insurance demand: can a regressive policy improve welfare?," Working Paper 2007-13, Federal Reserve Bank of Atlanta.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.