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Effects of employer health costs on the trend and distribution of Social Security-taxable wages

Series Title(s):
Center for Retirement Research working paper
Contributor(s):
Burtless, Gary.
Milusheva, Sveta.
Center for Retirement Research at Boston College.
Publication:
Chestnut Hill, MA : Center for Retirement Research at Boston College, c2012
Language(s):
English
Format:
Text
Subject(s):
Employer Health Costs -- trends
Health Benefit Plans, Employee -- economics
Health Benefit Plans, Employee -- trends
Salaries and Fringe Benefits -- trends
Social Security -- economics
Social Security -- trends
Taxes -- statistics & numerical data
Taxes -- trends
Cost Sharing -- statistics & numerical data
Cost Sharing -- trends
Employer Health Costs -- statistics & numerical data
Forecasting
Health Benefit Plans, Employee -- statistics & numerical data
Health Care Costs -- trends
Health Care Reform -- legislation & jurisprudence
Insurance, Health -- economics
Salaries and Fringe Benefits -- statistics & numerical data
Social Security -- statistics & numerical data
Humans
United States
Genre(s):
Technical Report
Abstract:
The increasing cost of employer contributions for employee health insurance reduces the percentage of compensation that is subject to the payroll tax. Rising insurance contributions can also have a more subtle effect on the Social Security tax base because they influence the distribution of money wages. Workers bear most of the burden of employer health contributions through lower money wages. Any change in the average cost and distribution of costs of employer health plans can have an effect on the distribution of wages and the percentage of wages subject to the payroll tax. This paper uses the Medical Expenditure Panel Survey (MEPS) to analyze trends in the cost of employer health contributions and the cross-worker distribution of health contributions. Our analysis shows that the 1996-2008 increase in employer health premiums was faster than overall compensation increases but only slightly faster among workers below the taxable maximum compared with those above the maximum. However, because employer health insurance premiums represent a much higher percentage of compensation below the maximum taxed earnings amount, the effect of health cost trends exerted a disproportionate downward pressure on money wages below the taxable maximum, reducing the percentage of compensation subject to the payroll tax. We simulated the implications of the health reform law on the trend in employer health costs around 2016. We find only slight effects on the fraction of worker compensation that will be subject to Social Security taxes. The higher insurance costs faced by employers who will be required to offer health plans will be approximately offset by lower health costs on the part of employers who will see some insured employees accept subsidized health insurance outside of an employer plan. The main long-term impact of reform on the taxable wage base is likely to be through its effect on the trend in underlying health care costs.
Copyright:
Reproduced with permission of the copyright holder. Further use of the material is subject to CC BY license. (More information)
Illustrations:
Illustrations
NLM Unique ID:
101584824 (See catalog record)
Series Title(s):
Center for Retirement Research working paper
Contributor(s):
Burtless, Gary.
Milusheva, Sveta.
Center for Retirement Research at Boston College.
Publication:
Chestnut Hill, MA : Center for Retirement Research at Boston College, c2012
Language(s):
English
Format:
Text
Subject(s):
Employer Health Costs -- trends
Health Benefit Plans, Employee -- economics
Health Benefit Plans, Employee -- trends
Salaries and Fringe Benefits -- trends
Social Security -- economics
Social Security -- trends
Taxes -- statistics & numerical data
Taxes -- trends
Cost Sharing -- statistics & numerical data
Cost Sharing -- trends
Employer Health Costs -- statistics & numerical data
Forecasting
Health Benefit Plans, Employee -- statistics & numerical data
Health Care Costs -- trends
Health Care Reform -- legislation & jurisprudence
Insurance, Health -- economics
Salaries and Fringe Benefits -- statistics & numerical data
Social Security -- statistics & numerical data
Humans
United States
Genre(s):
Technical Report
Abstract:
The increasing cost of employer contributions for employee health insurance reduces the percentage of compensation that is subject to the payroll tax. Rising insurance contributions can also have a more subtle effect on the Social Security tax base because they influence the distribution of money wages. Workers bear most of the burden of employer health contributions through lower money wages. Any change in the average cost and distribution of costs of employer health plans can have an effect on the distribution of wages and the percentage of wages subject to the payroll tax. This paper uses the Medical Expenditure Panel Survey (MEPS) to analyze trends in the cost of employer health contributions and the cross-worker distribution of health contributions. Our analysis shows that the 1996-2008 increase in employer health premiums was faster than overall compensation increases but only slightly faster among workers below the taxable maximum compared with those above the maximum. However, because employer health insurance premiums represent a much higher percentage of compensation below the maximum taxed earnings amount, the effect of health cost trends exerted a disproportionate downward pressure on money wages below the taxable maximum, reducing the percentage of compensation subject to the payroll tax. We simulated the implications of the health reform law on the trend in employer health costs around 2016. We find only slight effects on the fraction of worker compensation that will be subject to Social Security taxes. The higher insurance costs faced by employers who will be required to offer health plans will be approximately offset by lower health costs on the part of employers who will see some insured employees accept subsidized health insurance outside of an employer plan. The main long-term impact of reform on the taxable wage base is likely to be through its effect on the trend in underlying health care costs.
Copyright:
Reproduced with permission of the copyright holder. Further use of the material is subject to CC BY license. (More information)
Illustrations:
Illustrations
NLM Unique ID:
101584824 (See catalog record)