Abstract
This paper estimates the trade-off between salary and health insurance costs using a unique data source on salary and benefits provided to public school teachers in over 600 schools districts in Illinois between 1991 and 2008. Our analysis indicates that total health insurance premiums rose for Illinois teachers at the same rate as they did in the nation more broadly. We find no evidence that changes in teachers’ salaries within a district over time are related to changes in insurance premiums. However, teacher cash compensation is reduced through increased employee premium copayments when health insurance premiums increase. Teachers paid about 17 percent of the cost of individual health insurance and about 46 percent of the cost of their family members’ plans through increased premium copayments. We find no evidence that rising health insurance premiums reduce districts’ demand for teachers or that districts substitute less-experienced teachers when health costs rise. These findings indicate that rising health insurance costs raise total compensation costs, which is at odds with the standard view that the incidence of benefit cost increases are borne entirely by employees. This result suggests the value employees place on the changes in health care that are driving premium increases is less than the cost of the changes to employers. We find evidence consistent with this interpretation; the responsiveness of copayments for family insurance in response to changes in the family health insurance premium is larger in districts with an older, more experienced teacher workforce who are likely to value health care more than their younger colleagues. We hypothesize that technology driven health care cost increases may explain the difference between the higher cost of health insurance to employers and their value to employees.
Highlights
One of the most pressing issues that continues to confront policy-makers, employers and individuals is that the growth in health care costs have exceeded the growth of per capita incomes, wages, and the price of other goods for several decades
This paper investigates the incidence of rising health insurance premiums using a unique data set from over 600 public school districts in Illinois that tracks wages, health insurance premiums, and employee premium copayments for public school teachers from 1990-91 through the 2007-2008 school years
Our analysis indicates quite clearly that changes in premiums within a district over time are uncorrelated with changes in salary
Summary
One of the most pressing issues that continues to confront policy-makers, employers and individuals is that the growth in health care costs have exceeded the growth of per capita incomes, wages, and the price of other goods for several decades. The slope of a bivariate regression line through the data is 0.58 with a standard error of 0.27, which indicates that a $100 increase in premiums is associated with $58 higher salary We interpret this positive cross-sectional relationship as a reflection of other, potentially unobservable factors that lead some districts to offer both high wages and more expensive health insurance. Results in the first model in Panel A, which does not include district fixed effects, indicates that a dollar increase in the premium for individual health insurance is associated with a 0.19 dollar increase in the salary for a teacher who has a B.A. degree but no teaching experience. The first estimate in Panel A, which does not include district fixed effects, indicates that a dollar increase in the premium for family insurance is associated with a 5 cent increase in the salary for a teacher who has a B.A. and no teaching experience.
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