Blumberg_Who%20Pays - Perspective Who Pays For...

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Perspective Who Pays For Employer-Sponsored Health Insurance? Workers’ and employers’ perceptions about the insurance/wage trade-off strongly influence their reactions to public policy. by Linda J. Blumberg T he q u es tio n of w ho p ay s for em- ployer-sponsored health insurance has been debated for decades, with economists holding fast to the theory that workers pay through lower wages, and noneconomists by and large responding that employers pay. The answer to this question has substantial policy implications, some of which are alluded to briefly in the paper by Mark Pauly and col- leagues in this volume. 1 Here I discuss what the literature says about the incidence of payments for employer- sponsored health insurance, the gaps that re- main in our understanding of this issue, and the implications of these matters for current health policy debates. The Economic Literature Because workers who are more highly com- pensated tend to prefer part of their compen- sation in health insurance, simple analyses that do not take into account the selection of workers into particular jobs generally will find that health insurance is associated with higher wages. 2 Studies that do take selection effects into account tend to find a negative relation- ship between wages and employer-sponsored insurance. Including controls for both work- ers’ and employers’ characteristics seems also to be a key component of successful empirical studies. I briefly review here the published literature that most carefully addresses the complex identification issues involved. 3 n Health insurance and wages. In a study of public school districts, Randall Eberts and Joe Stone found that an additional dollar of health benefits was associated with an eighty- three-cent reduction in teachers’ salaries. 4 In another paper Stephen Woodbury defined fringe benefits in two different ways when exploring substitutions between wages and nonwage benefits: health insurance plus life insurance; and pensions, health insurance, and life insurance. While he found greater substitutability under the second definition, he also found relative ease of substitution between wages and health/life insurance. 5 Jonathan Gruber and Alan Krueger used in- creases in employers’ costs for workers’ com- pensation insurance to quantify the costs passed back to workers. 6 Depending upon the group of industries used in their analysis, they found that 56–85 percent of these costs were shifted back through reduced wages. 7 n Insurance mandates and wages. In a different study Gruber used another approach to measure the wage effects of state and fed- eral mandates for the coverage of maternity benefits. Using a small group of states prior to the federal mandates, he found that wage dif- ferences between states with and without mandates more than compensated for the costs associated with those benefits. Using all states, he found that 59–90 percent of the cost of the mandates was passed back to workers
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This note was uploaded on 04/18/2008 for the course HCMG 101 taught by Professor Harrington during the Spring '08 term at UPenn.

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Blumberg_Who%20Pays - Perspective Who Pays For...

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