NCPA - National Center for Policy Analysis


September 15, 2005

Health care costs are increasing tremendously. Premiums for employer-provided health insurance have risen 59 percent since 2000, far outstripping wage gains. According to a new paper from the National Bureau of Economic Research, this significant rise in the cost of health care is having a profound effect on workers.

Companies are passing these costs on to employees, say the authors:

  • Every 10 percent increase in health insurance costs reduces the chances of being employed by 1.6 percent.
  • Higher health care costs are reducing the hours worked by 1 percent as employers respond by converting full-time jobs to part-time positions, most of which do not include health benefits.
  • For workers who continue to get health insurance, more often, the increased price of premiums is coming out of their salary; a 10 percent increase in premiums is offset by a 2.3 percent decrease in wages.

Perhaps the biggest impact is on low-wage hourly workers:

  • Employers are legally constrained from how much they can reduce wages to accommodate a rise in health premiums, so many employers choose to drop coverage altogether.
  • For workers who earn less than $8 an hour, the researchers calculate that a 10 percent increase in health insurance premiums results in a 3.8 percent reduction in the probability of being offered health insurance coverage.

The authors also note that married, healthy women are more likely to lose their employer provided insurance when premiums go up, but for different reasons. Because they either can get coverage through their husband's plan or because they don't use health services frequently, the women may decide the higher premiums aren't worth it.

Source: Matthew Davis, "Effects of Rising Health Insurance Premiums," NBER Digest, August 2005; based upon: Katherine Baicker and Amitabh Chandra, "The Labor Market Effects of rising Health Insurance Premiums," National Bureau of Economic Research, Working Paper No. 11160, February 2005.

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