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How Will Employer Health Insurance Affect Wages and Social Security Finances?

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  • Anqi Chen
  • Alicia H. Munnell
  • Diana Horvath

Abstract

The rising cost of employer contributions to employee-sponsored health insurance (ESHI) can slow wage growth and erode the Social Security wage base. Both these effects were evident in the decades before 2005, as ESHI increased as a share of compensation. Fortunately, the ratio of ESHI contributions to compensation plateaued after 2005, stabilizing wages and halting the erosion of the share of labor compensation subject to Social Security’s taxable base. The question is whether the stabilization of employer contributions as a share of compensation is temporary or permanent. The analysis used the Medical Expenditure Panel Survey (MEPS) to determine why ESHI contributions rose as a share of compensation prior to 2005 and why this ratio stabilized in recent years. These findings, combined with some speculation about the impact of the Affordable Care Act (ACA) and the COVID pandemic, are used to project the ratio of ESHI to compensation over the next decade.

Suggested Citation

  • Anqi Chen & Alicia H. Munnell & Diana Horvath, 2023. "How Will Employer Health Insurance Affect Wages and Social Security Finances?," Working Papers, Center for Retirement Research at Boston College wp2023-12, Center for Retirement Research.
    • Handle: RePEc:crr:crrwps:wp2023-12
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