These are important issues, given that virtually all firms with two hundred or moreemployees offer health insurance, and employers pay 85 percent of the premium forindividual policies and 73 percent for family coverage. Employment-based insuranceaffects 153 million workers and dependents, as well as five million early retirees in theUnited States. We use interview data collected at multiple sites over six years to discusstwo interrelated historical roles that employers have played in local health care systems,one relatively private and one typically very public. The private role involves the decisionsof each individual firm in managing its health benefits. The public role focuses on thecollaborative efforts of employers to accomplish their objectives in local health caresystems. The literature provides three distinct perspectives on employers and their healthbenefits decisions. These perspectives are not mutually exclusive, but they do emphasizedifferent factors as being of primary importance in employer decision making. Together,they provide a framework that is useful for interpreting our empirical findings relative tothe private and public roles of employers in local health care markets. The first perspectiveemphasizes the role health benefits play in attracting and retaining workers, in the context9
of the employer's overall employee compensation strategy. This perspective is largelybased on standard theories of labor and product markets. One prediction of these theories is that increases in health care costs will be bornelargely by employees, in the form of lower wages. The net result is that total compensationremains largely unchanged, but workers receive more of that compensation in healthbenefits and less in wages. If the adjustment process occurs relatively quickly, increases inhealth care costs have only a minor, short-term negative impact on firm profits. Otherrecent studies did not find supportive evidence. Another way of framing this perspective isthat employer efforts to reduce coverage or implement other changes in the pursuit of costcontrol themselves have a cost. If employees perceive that these efforts diminish the valueof health benefits, they may leave the employer unless compensation is increased in otherareas. This suggests that employer efforts to contain health care costs will not cause profitsto increase. Therefore, from this perspective, the key question for employers is how topackage health benefits with other compensation in order to be successful in a competitivelabor market. The first perspective raises the question of why employers would want todevote much managerial effort to containing premium increases. Yet, many employersclearly have devoted resources to this end over the years, suggesting that they hold adifferent view.