Why Did Employee Health Insurance Contributions Rise?

We explore the causes of the dramatic rise in employee contributions to health insurance over the past two decades. In 1982, 44% of those who were covered by their employer-provided health insurance had their costs fully financed by their employer, but by 1998 this had fallen to 28%. We discuss the theory of why employers might shift premiums to their employees, and empirically model the role of six factors suggested by the theory. We find that there was a large impact of falling tax rates, rising eligibility for insurance through the Medicaid system and through spouses, and deteriorating economic conditions (in the late 1980s and early 1990s). We also find much more modest impacts of increased managed care penetration and rising health care costs. Overall, this set of factors can explain about one-quarter of the rise in employee premiums over the 1982-1996 period.