• Posted January 16, 2024

Higher Premiums for Employer-Sponsored Insurance Keep Wages Low: Study

Ever glance at your paycheck and wonder why your take-home pay is so much less than you'd expect?

The rising cost of employer-sponsored health insurance is a major reason why, a new study argues.

The cost of employer-sponsored health benefits increased much faster than workers' pay since the late 1980s, and likely reduced wages by an average of about $9,000 a year by 2019, the study found.

As a result, these health benefits have been a major factor in flattening wages and increasing income inequality over the past three decades, researchers reported in the Jan. 16 issue of the journal JAMA Network Open.

“Employers are spending more on insurance premiums instead of that money going to workers as wages,” said senior researcher Dr. Dariush Mozaffarian, a cardiologist and director of the Food is Medicine Institute at Tufts University, in Boston.

Further, the percentage of worker pay going toward health insurance premiums was substantially higher for Black, Hispanic and lower-income workers, results show.

“These hidden costs of increasing health care are even worse for people of color and low-wage workers, leading to less wage growth, heavier insurance premium burden and greater income inequality,” Mozaffarian said in a university news release.

For this study, researchers examined national insurance data for people covered by employer-sponsored plans between 1988 and 2019. Annually, nearly 45 million Americans received health insurance through their employer.

In 1988, health care premiums represented about 8% of a worker's total compensation, results showed.

But by 2019, that number had jumped to nearly 18% of total compensation.

If the cost of employer-sponsored insurance had remained at the same proportion as 1988, the average family could have earned $8,774 more in annual wages in 2019, researchers estimated.

Black and Hispanic families lost a higher percentage of their wages to health premiums that white families, researchers found.

Health insurance premiums represented about 19% of compensation for Asian and Black families and nearly 20% of compensation for Hispanic families, compared to about 14% for white families.

Low-paid workers were also hit hard. In 2019, health care premiums ate up 28% of compensation for some of the lowest-paid families, compared to 4% for the highest-paid families.

This phenomenon “can lead to a spiral of financial insecurity as insurance costs go up, and wages continue to be suppressed,” said lead researcher Kurt Hager, an instructor of population and quantitative health at UMass Chan Medical School. Hager completed the work as a doctoral student at the Friedman School of Nutrition Science and Policy at Tufts.

These findings highlight the critical need to change U.S. health care policy to focus on prevention and lower cost care, Mozaffarian said.

“Health insurance should help people, not hold them back, or push them further behind when it comes to wages and income equality,” Mozaffairan said.

More information

HealthCare.gov has more about total costs for health care.

SOURCE: Tufts University, news release, Jan. 16, 2024