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Wage and Benefit Changes in Response to Rising Health Insurance


  • Goldman Dana P

    () (RAND Corporation and NBER)

  • Sood Neeraj

    () (RAND Corporation and NBER)

  • Leibowitz Arleen

    () (UCLA School of Public Policy and Social Research)


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 compensationeither 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.

Suggested Citation

  • Goldman Dana P & Sood Neeraj & Leibowitz Arleen, 2005. "Wage and Benefit Changes in Response to Rising Health Insurance," Forum for Health Economics & Policy, De Gruyter, vol. 8(1), pages 1-17, January.
  • Handle: RePEc:bpj:fhecpo:v:8:y:2005:n:3

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    References listed on IDEAS

    1. Daniel P. Kessler & Mark McClellan, 1996. "Do Doctors Practice Defensive Medicine?," NBER Working Papers 5466, National Bureau of Economic Research, Inc.
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    4. Dubay, Lisa & Kaestner, Robert & Waidmann, Timothy, 1999. "The impact of malpractice fears on cesarean section rates," Journal of Health Economics, Elsevier, vol. 18(4), pages 491-522, August.
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    Cited by:

    1. Adams, Scott, 2007. "Health insurance market reform and employee compensation: The case of pure community rating in New York," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1119-1133, June.
    2. Jessica Vistnes & Thomas Selden, 2011. "Premium growth and its effect on employer-sponsored insurance," International Journal of Health Economics and Management, Springer, vol. 11(1), pages 55-81, March.
    3. DeVaro, Jed & Maxwell, Nan L., 2014. "The elusive wage-benefit trade-off: The case of employer-provided health insurance," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 23-37.

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