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Wage and Benefit Changes in Response to Rising Health Insurance

In: Frontiers in Health Policy Research, Volume 8

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  • Dana P. Goldman
  • Neeraj Sood
  • Arleen Leibowitz

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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Suggested Citation

  • Dana P. Goldman & Neeraj Sood & Arleen Leibowitz, 2005. "Wage and Benefit Changes in Response to Rising Health Insurance," NBER Chapters, in: Frontiers in Health Policy Research, Volume 8, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:9875
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    Cited by:

    1. Daron Acemoglu & Andrea Manera & Pascual Restrepo, 2020. "Does the US Tax Code Favor Automation?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(1 (Spring), pages 231-300.
    2. 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.
    3. 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.
    4. 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.
    5. Stéphanie Lluis, 2009. "The Structure of Wages by Firm Size: A Comparison of Canada and the USA," LABOUR, CEIS, vol. 23(2), pages 283-317, June.
    6. Nan L. Maxwell, 2008. "Labor Markets And Health Benefits: The Offer And Restrictions On It," Contemporary Economic Policy, Western Economic Association International, vol. 26(1), pages 73-88, January.

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