Estimating workers’ marginal valuation of employer health benefits: Would insured workers prefer more health insurance or higher wages?

Abstract

In recent years the cost of health insurance has been increasing much faster than wages. In the face of these rising costs, many employers will have to make difficult decisions about whether to cut back health benefits or to compensate workers with lower wages or lower wage growth. In this paper, we ask the question, “Which do workers value more—one additional dollar's worth of health benefits or one more dollar in their pockets? ” Using a new approach to obtaining estimates of insured workers’ marginal valuation of health benefits this paper estimates how much, on average, employees value the marginal dollar paid by employers for their workers’ health insurance. We find that insured workers value the marginal health premium dollar at significantly less than the marginal wage dollar. However, workers value insurance generosity very highly. The marginal dollar spent on health insurance that adds an additional dollar's worth of observable dimensions of plan generosity, such as lower deductibles or coverage of additional services, is valued at significantly more than one dollar.