Why do employers do what they do? Compensating differentials

The incidence of the healthcare costs of chronic conditions

Who pays for the costs of chronic conditions? In this paper, we examine whether 50-64-year old workers covered by employer-sponsored insurance bear healthcare costs of chronic conditions in the form of lower wages. Using a difference-in-differences approach with data from the Health and Retirement Study, we find that workers with chronic diseases receive significantly lower wages than healthy workers when they are covered by employer-sponsored insurance. Our findings suggest that higher healthcare costs of chronic conditions can explain the substantial part of the wage gap between workers with and without chronic diseases.

Why Do Hispanics Have So Little Employer-Sponsored Health Insurance?

This paper investigates low rates of employer health insurance coverage among Hispanics using national data from the Community Tracking Study Household Survey. Interview language served as a proxy for the degree of assimilation. Findings indicate that English-speaking Hispanics are more similar to whites in their labor market experiences and coverage than they are to Spanish-speaking Hispanics. Spanish-speakers' very low human capital (including their inability to speak English) results in much less access to job-based insurance. Though less important, Spanish-speaking Hispanics' demand for employer-sponsored insurance appears lower than that of English-speaking Hispanics or whites. Results suggest that language and job training may be the most effective way to bolster Hispanics' insurance coverage.

The Role of the Safety Net in Employer Health Benefit Decisions

The potential for sizable crowd-out of private expenditures by public insurance and delivery programs has been demonstrated. However, there is limited evidence about whether this stems from decisions of employers about their health benefit package or by decisions of workers. This study focuses on the role of public programs on employer decisions to offer insurance and the amount the employer contributes to the premium, using data from a large survey of employers and a database describing community characteristics. The study finds that both public insurance and public delivery programs have a significant effect on employer decisions, but the magnitude of the effect is small. Policies to limit crowd-out should focus on incentives to make continued private insurance purchase attractive to workers rather than incentives to employers.

Estimating the compensating differential for employer-provided health insurance

The theory of wage differentials argues that workers must pay for employer-provided group health insurance coverage through lower wages or reductions in other fringe benefits. This paper uses data from the 1988-90 Consumer Expenditure Survey (CEX) to estimate the wage-health insurance trade-off for male workers between the ages of 25 and 55. A fixed-effects model, which takes advantage of the rotating panel design of the CEX, is used to control for unobservable worker characteristics that are positively related with all forms of compensation, including wage earnings and health insurance coverage. I find a compensating differential for health insurance equal to roughly 10 to 11 percent of wages. Some caution is advised here due to the fact that I was unable to control for other fringe benefits, the most important being paid vacation and sick leave.

Managing costs, managing benefits: employer decisions in local health care markets

OBJECTIVES

To better understand employer health benefit decision making, how employer health benefits strategies evolve over time, and the impact of employer decisions on local health care systems.

DATA SOURCES/STUDY SETTING

Data were collected as part of the Community Tracking Study (CTS), a longitudinal analysis of health system change in 12 randomly selected communities.

STUDY DESIGN

This is an observational study with data collection over a six-year period.

DATA COLLECTION/EXTRACTION METHODS

The study used semistructured interviews with local respondents, combined with monitoring of local media, to track changes in health care systems over time and their impact on community residents. Interviewing began in 1996 and was carried out at two-year intervals, with a total of approximately 2,200 interviews. The interviews provided a variety of perspectives on employer decision making concerning health benefits; these perspectives were triangulated to reach conclusions.

PRINCIPAL FINDINGS

The tight labor market during the study period was the dominant consideration in employer decision making regarding health benefits. Employers, in managing employee compensation, made independent decisions in pursuit of individual goals, but these decisions were shaped by similar labor market conditions. As a result, within and across our study sites, employer decisions in aggregate had an important impact on local health care systems, although employers' more highly visible public efforts to bring about health system change often met with disappointing results.

CONCLUSIONS

General economic conditions in the 1990s had an important impact on the configuration of local health systems through their effect on employer decision making regarding health benefits offered to employees, and the responses of health plans and providers to those decisions.