HEALTH CARE INFLATION IS COSTING WORKERS OTHER BENEFITS
September 8, 2005
Rising health costs are a serious problem in the United States. A new paper from the National Bureau of Economic Research (NBER) finds that many workers are sacrificing other types of insurance to keep paying for health insurance.
The authors examined the response to health insurance costs among almost 3,000 employees at a single large firm. Employees are offered defined contributed benefit plans. These plans offer a base amount of coverage for a variety of areas, such as health, life insurance, disability and retirement. If employees want additional coverage in any area, they can either pay for it outright from their pretax earning or reduce benefits in one area and shift them to another.
During the three-year study, noncatastrophic health care prices went up. Employees had to pay for some of the other benefits, such as disability and life insurance, or pay the premiums for more comprehensive health plans.
- Two-thirds of the health insurance premium increase was paid for with wages and the remaining third from a reduction in other coverage.
- Some employees simply shifted to less generous plans, such as one that only covers catastrophic illness.
Consequently, rising health insurance costs are not only reducing take home pay -- and hence consumer spending -- they also are lowering insurance purchases against a variety of other risks. The authors warn that as health insurance becomes more expensive, employees will become increasingly vulnerable to other non-health care related risks, such as disability or premature death.
Source: Matthew Davis, "Effects of Rising Health Insurance Premiums," NBER Digest, August 2005; based upon: Dana Goldman, Neeraj Sood and Arleen Leibowitz, "Wage and Benefit Changes in Response to Rising Health Insurance Costs," National Bureau of Economic Research, Working Paper No. 11063, January 2005.
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