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Wage and Benefit Changes in Response to Rising Health Insurance
1RAND Corporation and NBER, firstname.lastname@example.org
2RAND Corporation and NBER, email@example.com
3UCLA School of Public Policy and Social Research, firstname.lastname@example.org
Citation Information: Forum for Health Economics & Policy. Volume 8, Issue 1, Pages –, ISSN (Online) 1558-9544, DOI: 10.2202/1558-9544.1011, January 2005
- Published Online:
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.