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The Reallocation of Compensation in Response to Health Insurance Premium Increases

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  • Dana P. Goldman
  • Neeraj Sood
  • Arleen Leibowitz

Abstract

This paper examines how compensation packages change when health insurance premiums rise. We use data on employee choices within a single large firm with a flexible benefits plan; an increasingly common arrangement among medium and large firms. In these companies, employees explicitly choose how to allocate compensation between cash and various benefits such as retirement, medical insurance, life insurance, and dental benefits. We find that a $1 increase in the price of health insurance leads to 52-cent increase in expenditures on health insurance. Approximately 2/3 of this increase is financed through reduced wages and 1/3 through other benefits

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9540.

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Date of creation: Mar 2003
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Publication status: published as Goldman, Dana P., Nerraj Sood and Arleen Leibowitz. "The Reallocation Of Compensation In Response To Health Insurance Premium Increases," Economics Letters, 2005, v88(2,Aug), 147-151.
Handle: RePEc:nbr:nberwo:9540

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  1. David M. Cutler & Sarah J. Reber, 1998. "Paying For Health Insurance: The Trade-Off Between Competition And Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 433-466, May.
  2. Robert S. Smith & Ronald G. Ehrenberg, 1983. "Estimating Wage-Fringe Trade-Offs: Some Data Problems," NBER Chapters, in: The Measurement of Labor Cost, pages 347-370 National Bureau of Economic Research, Inc.
  3. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  4. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
  5. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March.
  6. Helen Levy, 1998. "Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums," Working Papers 777, Princeton University, Department of Economics, Industrial Relations Section..
  7. Gerald S. Goldstein & Mark V. Pauly, 1976. "Group Health Insurance as a Local Public Good," NBER Chapters, in: The Role of Health Insurance in the Health Services Sector, pages 73-114 National Bureau of Economic Research, Inc.
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Cited by:
  1. Patricia CRIFO & Marc-Arthur DIAYE, 2011. "The Composition of Compensation Policy : from Cash to Fringe Benefits," Annales d'Economie et de Statistique, ENSAE, issue 101-102, pages 307-326.

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