Wage and Benefit Changes in Response to Rising Health Insurance Costs

Dana Goldman, Neeraj Sood and Arleen Leibowitz

No 11063, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: J33 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-hea, nep-ias and nep-lab
Note: EH LS
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Citations: View citations in EconPapers (6)

Published as 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.
Published as Goldman, Dana P., Neeraj Sood and Arleen Leibowitz. "Wage And Benefit Changes In Response To Rising Health Insurance," Forum for Health Economics and Policy, 2005, v8, Article 3.

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