Health Benefit Downward Rigidity: Employers’ Responses to Rising Insurance Costs

Abstract

The article examines employers’ responses to rising insurance costs using Census Bureau Medical Expenditure Panel Survey–Insurance Component data from 1997 to 2005. The findings confirm that employers did not take dramatic actions to reduce benefit in response to the rising insurance cost during our study period. Most employers did not drop health insurance coverage, reduce workers’ eligibility for insurance, or substantially scale back their health insurance coverage. Instead, companies controlled the insurance cost in more subtle ways by adopting cost-efficient health plans and requesting employee contribution to the insurance premium and out-of-pocket expenses for medical treatments. Our results show that the effect of those tactics was limited. The share of employee spending did not rise along with the growth of insurance premiums. Employers absorbed a large portion of the increased insurance cost.