Wage and Benefit Changes in Response to Rising Health Insurance Costs

24 Pages Posted: 15 Feb 2005 Last revised: 25 Sep 2010

See all articles by Dana P. Goldman

Dana P. Goldman

RAND Corporation; National Bureau of Economic Research (NBER)

Neeraj Sood

University of Southern California; National Bureau of Economic Research (NBER); RAND Corporation; University of Southern California - Schaeffer Center for Health Policy and Economics

Arleen Leibowitz

UCLA School of Public Affairs

Date Written: January 2005

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.

Suggested Citation

Goldman, Dana P. and Sood, Neeraj and Leibowitz, Arleen, Wage and Benefit Changes in Response to Rising Health Insurance Costs (January 2005). NBER Working Paper No. w11063. Available at SSRN: https://ssrn.com/abstract=652362

Dana P. Goldman (Contact Author)

RAND Corporation ( email )

P.O. Box 2138
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Neeraj Sood

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

Arleen Leibowitz

UCLA School of Public Affairs ( email )

Box 951656
Los Angeles, CA 90095-1656
United States

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