Who Pays for Health Care Costs? The Effects of Health Care Prices on Wages

Abstract

Over 150 million Americans receive health insurance benefits from an employer as a form of compensation. In recent years, health care costs have grown rapidly, raising concerns that increased health care spending crowds-out wage increases. We leverage hospital mergers to test the impact of health care prices on wages and benefit design. We find that within-market hospital mergers over the 2012-2022 period lead to an 8.4% increase in health care spending and a 2.3% reduction in wages among workers with employer-sponsored health insurance, implying a pass-through of 27% from health care spending to wages. We also find evidence that hospital mergers increase per enrollee deductible and cost sharing payments, but do not change out-of-pocket spending as a percentage of total health care spending. Our results imply that Americans feel the effects of rising health care costs via two channels: higher out-of-pocket spending and lower wages.