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Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums

Author

Listed:
  • Helen Levy

    (Princeton University)

Abstract
Most private health insurance in the US is provided as a benefit of employment. One explanation for this phenomenon is that employer contributions to health insurance premiums are not taxed as income to the worker. It is somewhat puzzling, then, that a substantial fraction of workers contribute to their premiums, since these contributions are frequently made out of after-tax dollars. In this paper l examine the possibility that firms use employee contributions to distinguish between workers who do and do not want health insurance, in order to compensate them more efficiently when recruiting additional workers is costly. This model has clear predictions for the relationship between worker demand for health insurance and (l) the probability that health insurance is offered; (2) the probability that an employee contribution is required; (3) the probability that the firm establishes a Flexible Spending Account that allows the employee contribution to be made pre-tax; and (4) the employee's share of the premium when a contribution is required. l test these predictions using data from the 1993 Robert Wood Johnson Foundation Survey of Employers. Using worker age as a proxy for health insurance demand, I find results that are generally consistent with the predictions of the model. However, the fraction of workers who are female, which should also be related to demand for health insurance, does not exhibit a consistent relationship with health insurance offering and contribution requirements, so that overall the evidence on this hypothesis is mixed I conclude that while imperfect worker sorting on the basis of demand for health insurance does not explain all employee contributions, it may play a significant role in explaining why firms require contributions.

Suggested Citation

  • Helen Levy, 1998. "Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums," Working Papers 777, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:398
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    Citations

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    Cited by:

    1. Jack, William & Levinson, Arik & Rahardja, Sjamsu, 2006. "Employee cost-sharing and the welfare effects of flexible spending accounts," Journal of Public Economics, Elsevier, vol. 90(12), pages 2285-2301, December.
    2. Farber, Henry S. & Levy, Helen, 2000. "Recent trends in employer-sponsored health insurance coverage: are bad jobs getting worse?," Journal of Health Economics, Elsevier, vol. 19(1), pages 93-119, January.
    3. Lehrer, Steven F. & Pereira, Nuno Sousa, 2007. "Worker sorting, compensating differentials and health insurance: Evidence from displaced workers," Journal of Health Economics, Elsevier, vol. 26(5), pages 1034-1056, September.
    4. Gulcin Gumus & Tracy Regan, 2007. "Self-Employment and the Role of Health Insurance," Working Papers 0910, University of Miami, Department of Economics.
    5. Lara D. Shore-Sheppard, 2000. "The Effect of Expanding Medicaid Eligibility on the Distribution of Children's Health Insurance Coverage," ILR Review, Cornell University, ILR School, vol. 54(1), pages 59-77, October.
    6. Stéphanie Lluis & Jean Abraham, 2013. "The Wage–Health Insurance Trade-off and Worker Selection: Evidence From the Medical Expenditure Panel Survey 1997 to 2006," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 52(2), pages 541-581, April.
    7. 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.
    8. Harley Frazis & Mark A. Loewenstein, 2009. "How Responsive are Quits to Benefits?," Working Papers 426, U.S. Bureau of Labor Statistics.
    9. Henry S. Farber & Helen Levy, 1998. "Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?," Working Papers 781, Princeton University, Department of Economics, Industrial Relations Section..
    10. Norman Thurston, 1999. "On the decline of employment-based health insurance in the US," Applied Economics Letters, Taylor & Francis Journals, vol. 6(10), pages 683-686.
    11. Marjorie Honig & Irena Dushi, 2005. "Household Demand for Health Insurance: Price and Spouse's Coverage," Economics Working Paper Archive at Hunter College 411, Hunter College Department of Economics.
    12. Jean Marie Abraham & Thomas DeLeire & Annne Beeson Royalty, 2007. "Health Insurance, Pensions, and Paid Leave: Access to Health Insurance at Small Firms in a Broader Benefit Context: Working Paper 2007-08," Working Papers 18725, Congressional Budget Office.
    13. Paul Oyer, 2008. "Salary or benefits?," Research in Labor Economics, in: Work, Earnings and Other Aspects of the Employment Relation, pages 429-467, Emerald Group Publishing Limited.
    14. C. J. Krizan & Adela Luque & Alice Zawacki, 2014. "The Effect Of Employer Health Insurance Offering On The Growth And Survival Of Small Business Prior To The Affordable Care Act," Working Papers 14-22, Center for Economic Studies, U.S. Census Bureau.
    15. Henry S. Farber & Helen Levy, 1998. "Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?," Working Papers 781, Princeton University, Department of Economics, Industrial Relations Section..
    16. Miller, Nolan, 2005. "Health Benefits and Wages: Minimizing Total Compensation Cost," Working Paper Series rwp05-029, Harvard University, John F. Kennedy School of Government.
    17. Priyanka Anand, 2017. "Health Insurance Costs and Employee Compensation: Evidence from the National Compensation Survey," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 1601-1616, December.
    18. Dranove, David & Spier, Kathryn E. & Baker, Laurence, 2000. "'Competition' among employers offering health insurance," Journal of Health Economics, Elsevier, vol. 19(1), pages 121-140, January.
    19. Barton H. Hamilton & James Marton, 2008. "Employee choice of flexible spending account participation and health plan," Health Economics, John Wiley & Sons, Ltd., vol. 17(7), pages 793-813, July.
    20. Miller, Nolan H., 2005. "Pricing health benefits: A cost-minimization approach," Journal of Health Economics, Elsevier, vol. 24(5), pages 931-949, September.
    21. Steven F. Lehrer & Nuno Sousa Pereira, 2008. "Worker Sorting, Health Insurance and Wages: Further Evidence from Displaced Workers in the United States," CEF.UP Working Papers 0804, Universidade do Porto, Faculdade de Economia do Porto.
    22. Selden, Thomas M., 1999. "Premium subsidies for health insurance: excessive coverage vs. adverse selection," Journal of Health Economics, Elsevier, vol. 18(6), pages 709-725, December.
    23. Lennon, Conor, 2021. "Are the costs of employer-sponsored health insurance passed on to workers at the individual level?," Economics & Human Biology, Elsevier, vol. 41(C).

    More about this item

    Keywords

    employer-sponsored health insurance; compensation;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F19 - International Economics - - Trade - - - Other

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