Health Insurance Costs and Employee Compensation: Evidence from the National Compensation Survey

This paper examines the relationship between rising health insurance costs and employee compensation. I estimate the extent to which total compensation decreases with a rise in health insurance costs and decompose these changes in compensation into adjustments in wages, non-health fringe benefits, and employee contributions to health insurance premiums. I examine this relationship using the National Compensation Survey, a panel dataset on compensation and health insurance for a sample of establishments across the USA. I find that total hourly compensation reduces by $0.52 for each dollar increase in health insurance costs. This reduction in total compensation is primarily in the form of higher employee premium contributions, and there is no evidence of a change in wages and non-health fringe benefits. These findings show that workers are absorbing at least part of the increase in health insurance costs through lower compensation and highlight the importance of examining total compensation, and not just wages, when examining the relationship between health insurance costs and employee compensation.