Workers give up health insurance to stabilize employer costs – Retirement Research Center

The cost of providing health insurance to employers has been quite stable for years.

At first glance, this seems good news for workers. When the cost of benefits rises, employers tend to take it out of the employee’s salary. But as costs stabilized, health insurance no longer puts downward pressure on wages in the 1990s. This has the additional advantage of stopping wage erosion from Social Security’s payroll tax.

However, to fully understand all of this means to workers, it is necessary to explore why the employer's insurance costs (measured by the percentage of total compensation for workers) are stable. A recent study delves into this issue by examining the period from 1996 to 2019. Researchers stopped analyses before Covid to avoid measuring the abnormal effects of the pandemic.

According to the Boston College’s Center for Retirement Research, one of the main forces that offset U.S. health care spending from 2005 is that low-income workers can’t afford health insurance first, and they’re the least likely to be able to afford health insurance, according to the Boston College’s Center for Retirement Research.

When they abandon the policy, employers’ costs are disproportionate, because insurance is a large share of the total compensation of low-income workers – up to half, while the unit percentage of the highest earners.

Low-income workers are abandoning coverage for two reasons. First, they struggle to pay the premium. Employers are also increasingly paying smaller premium shares, and workers are increasingly pursuing policies of high deductions. Rising insurance costs will affect everyone, but low-income workers will feel more.

The Affordable Care Act (ACA) passed in 2010 may also play a role. Individuals can now purchase private policies on state insurance exchanges offer another cheaper option. The less workers earn, the greater the premium subsidy they qualify for. Millions of workers are also added to Medicaid volumes under the ACA, which increases the income cap for eligibility for low-cost coverage.

Employers’ insurance costs have also fallen as fewer workers, especially low-wage workers, are hiring expensive family plans. The average premium for these programs has tripled since the mid-1990s, reaching $20,500 in 2019, while the average price for a single policy is about $7,000. Under the ACA, family planning is not an option.

This brings us back to what these trends mean for workers’ wages and from the expansion, is the financial position of social security. By 2031, one of two situations can work.

If workers continue to opt out of employer health coverage, this will offset the expected increase in future health spending and reduce stress on wages. In this case, the researchers estimate that employers’ costs as a percentage of workers’ total compensation will remain at the current level, less than 8%.

However, if planned participation stabilizes, employer costs may increase to nearly 9% of compensation by 2031. “Forward, health costs can again promote” employers' costs and suppress wages – “unless this growth factor is offset, the researchers concluded.

Read this Short Anqi Chen, Alicia Munnell and Diana Horvath, see “How will employer health insurance affect wages and social security?”

The research reported in this article was conducted based on grants from the U.S. Social Security Agency (SSA) funded by a part of the Retirement and Disability Research Alliance. The opinions and conclusions expressed are merely the opinions of the author and do not represent the opinions or policies of the SSA or any agency of the federal government. Neither the U.S. Government or any of its agencies, nor any of its employees, has any legal liability or liability for the accuracy, completeness or usefulness of the contents of this report. References herein to any particular commercial product, process or service, by trademark, trademark, manufacturer or otherwise, do not necessarily constitute or imply the endorsement, advice or preference of the U.S. Government or any of its institutions.