Snapshots: Compensation for Workers with & without Access to Health Benefits at Work

This paper compares the payroll and benefit compensation of workers that had access to employer-sponsored health benefits at work to that of workers who did not have an insurance offer. Surveys of employers indicate that smaller and lower wage firms are less likely to offer health benefits to workers, but do not provide detailed information about wage and benefit differences for workers with and without an offer of health benefits working in different settings.¹ In this Snapshot, we use information from a nationally representative survey of workers to provide a fuller picture of the compensation for workers with health coverage access at their job compared to those without such access by firm size and occupation. We also assess trends over time. This study updates our earlier snapshot published in 2008.

Our analysis is based on data from the National Compensation Survey (NCS), which is a nationwide survey of labor costs in private and public establishments conducted quarterly by the Bureau of Labor Statistics (BLS).² The data offer comparisons between 1999 and 2011. Details about the NCS and our analysis are available in a methodological appendix at the end of this analysis. Worker compensation is divided into three categories: payroll costs, fringe benefit costs excluding employer payments for health insurance, and employer payments for health insurance. Differences in compensation between workers with and without access to health benefits are compared with regard to payroll and non-health fringe benefits.

Methodological Appendix

The Employment Cost Index (ECI) is a nationwide survey of labor costs in private and public establishments conducted quarterly by the Bureau of Labor Statistics (BLS).  The ECI was developed in the mid-1970s to track changes in the costs of employment.  Later modifications added data about health and other fringe benefits.  Since about 2003, the ECI sample was merged with a broader group of surveys on employer benefits and payroll costs collectively referred to as the National Compensation Survey (NCS).⁷

ECI/NCS data are constructed by first choosing establishments in private industry and in state and local governments in the 50 states and the District of Columbia.  Federal government, agriculture, and private household establishments are excluded from the sample.  Then the survey collects information about the costs of employment for up to eight job classifications in each establishment that is surveyed.  The data are aggregated to a job level, rather than collected for individual workers, so that continuity within establishments may be maintained over time as individual workers enter and exit the establishment.  Jobs are sampled proportional to their prevalence at the establishment.  For instance, in a plant which produces coal, separate wage and benefits costs for miners, engineers, and truck drivers may be obtained by the survey, whereas other jobs with fewer employees, such as for accountants and crane operators, may be excluded.  The data we use are nevertheless representative of all workers in the United States as of June of each calendar year.  The exhibits and calculations are presented on a per-worker-hour basis and include all employees in sampled jobs, including those that are seasonal, part-time, or temporary.  We use data each year from 1999 to 2011.

Readers also should be aware that employer costs for benefits in a job classification are averaged over all of the workers in that job classification, even if workers do not participate in the benefit.  As examples, employees offered health benefits may choose not to take them up and new employees may face an exclusion period before they are eligible for benefits from the employer.  Thus, differences in employer costs across job classifications or over time may to some extent reflect different participation rates for workers and their dependents.

Hourly costs for payroll and health insurance are provided by the Bureau of Labor Statistics and we used these estimates because they adjust for differences in the number of hours worked annually among employees.  Hourly cost of payroll was calculated by combining hourly costs for wages, overtime, vacation pay, sick pay, as well as bonuses and other paid leave.  Because the data are collected from establishments, not firms, firm-level characteristics, e.g. firm size, are not available.  The paper avoids the use of the term firm, although it uses the terms “employer” and “establishment” synonymously although they may not be equal.

The BLS provides survey weights which enable the researcher to calculate statistics which are representative of workers in the United States in a given year.  An adjustment to these weights was made to correct for changes in the composition of industries and occupations in the United States over time.  This adjustment allows for a more accurate comparison of figures over time, but only very marginally affected the results presented in this paper.

BLS researchers impute missing data for hourly values when respondents do not provide sufficient data to calculate them.  In 2011, 8.5 percent of observations were missing a response to the question of whether health insurance was offered to workers holding that particular job.  Rather than impute a value for these observations, for all statistics, these observations were excluded from our sample.

The Kaiser Family Foundation obtained access to the ECI/NCS through an agreement with the BLS.  All analyses were performed on site at the BLS headquarters in Washington D.C. during September 2011 by Kaiser Family Foundation staff.

Appendix

This appendix contains the distribution of payroll cost data for selected occupations or establishment size, including 25th percentile, median, and 75th percentile. The tables below correspond with Figures 3, 4, and 6.

Notes:

1. A worker is considered to have access to employer health benefits as long as their employer offers health benefits to at least one worker within the group to which the worker belongs.  In this paper, we use the term access rather than offer since the numbers are calculated at the worker level.  Also, worker access to health benefits does not necessarily imply they are eligible to receive those benefits.  Some employers may offer benefits to a group of workers, but these workers may not be eligible to receive those benefits until certain criteria, such as a waiting period after being hired, are met.
2. As part of the National Compensation Survey, the Bureau of Labor Statistics collects these data quarterly to develop the Employment Cost Index (ECI) which is designed to measure changes in compensation costs for the civilian workforce.  Other details on how the statistics were derived from the ECI data are reported in the Methodological Appendix in this report.
3. This reflects an adjustment for inflation of 35 percent over the period.
4. The medians not shown in Figures 3 and 4 can be found in the Appendix in Table 3a and Table 4a, respectively.
5. The medians not shown in Figure 6 can be found in the Appendix in Table 6a.
6. See, Kaiser Family Foundation, “Employer Health Insurance Costs and Worker Compensation,” February 2011.  Available online at: http://www.kff.org/insurance/snapshot/Employer-Health-Insurance-Costs-and-Worker-Compensation.cfm.
7. Ibid.
8. The much lower compensation received by workers without offers compared to that received by workers with offers suggests that workers without offers are much less skilled, and that it would not be surprising if their “value” to their employers grew more slowly than higher paid workers.  To our knowledge, there have been few studies dealing with how productivity increases may drive differences in total compensation by whether a worker has access to health insurance.  This may be because worker productivity is difficult to measure and compare, which often leads researchers to study productivity as a residual, unmeasured, element of changes in total compensation.  Several studies which touch upon this issue include:  Ezekiel J. Emanuel and Victor R. Fuchs, “Who Really Pays for Health Care? The Myth of ‘Shared Responsibility,’” The Journal of the American Medical Association, vol. 299, no. 9, March 2008, pp.1057-1059; Dana P. Goldman, Neeraj Sood, and Arleen A. Leibowitz, “The Reallocation of Compensation in Response to Health Insurance Premium Increases,” NBER Working Paper 9540, March 2003; Hae-shin Hwang, W. Robert Reed, and Carlton Hubbard, “Compensating Wage Differentials and Unobserved Productivity,” The Journal of Political Economy, vol. 100, no. 4, August 1992, pp. 835-858; and Steven F. Lehrer and Nuno Sousa Pereira, “Worker Sorting, Compensating Differentials and Health Insurance: Evidence From Displaced Workers,” NBER Working Paper 12951, March 2007.

An earlier version of this Snapshot, using historical data, is available online.