Passing health care costs to employees

September 19, 2016

Passing health care costs to employees

New data on the trade-off between wages and employer-provided health insurance


A study was published in The Journal of Health Economics provides striking data on ways that health care costs have been passed on to employees in the Illinois public school system in the 1990s and 2000s. The research also provides unique insight about the trade off employees make between health insurance and wages. This Research Spotlight provides an overview of the research.


IGPA Expert Darren Lubotsky and Craig A. Olson, a professor in the School of Labor and Employment Relations, examined 18 years of data from the Illinois State Board of Education census of school districts. Their research found that as health insurance costs have increased dramatically over this period, teachers have contributed more toward their health insurance premiums through payroll deductions. 


Following a national trend, teacher salaries in Illinois have not grown much since the early 1990s (by only about 0.3 percent each year). At the same time, health insurance costs have risen by 89 percent, or about 3.8 percent per year for individual plans, and by 4.6 percent annually for family plans. The burden of this increase in costs was shared between teachers and school districts. Teachers’ take-home pay decreased because they face payroll deductions for their health insurance premiums.


Lubotsky and Olson’s analysis indicates that for every $100 increase in the premium for individual insurance, teachers pay an additional $17 in payroll deductions. For every $100 increase in the premium for family insurance, teachers pay an additional $46 in payroll deductions. Lubotsky and Olson found that salaries did not change in response to changes in insurance costs, and school districts did not respond to the higher costs by hiring fewer or less qualified teachers.


“This research documents that premium contributions by employees are an important factor to consider when looking for cost-saving measures in public education,” Lubotsky said. “Because teachers contribute to paying for their premium, large shares of cost-savings will be passed on to teachers themselves, and will not necessarily translate to dollar-for-dollar savings for the districts and taxpayers.” 


(.PDF 198.42 KB)

Research Area: Health Policy & Economic Policy

Policy Initiative: none