Comparing the cost of public-sector and private-sector employee health benefits in Washington state

By ROGER STARK  | 
POLICY NOTES
|
Nov 28, 2018

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Key Findings

  1. Since 1943, employers have been providing tax-free health benefits for employees.
  2. Today half of all Americans, including government workers, receive their health benefits from their employer or their spouse’s employer.
  3. Health insurance costs continue to rise in spite of the greater use of preferred provider organizations, health maintenance organizations, and in-network insurance plans. 
  4. A national survey of 10,000 employers found that the average cost of health coverage for public employees is 17.5 percent higher than for private workers.
  5. Yet public employees pay, on average, 45 percent less in monthly premiums than private-sector employees.
  6. As health insurance premiums rise for everyone, the burden on taxpayers increases to pay for government workers’ insurance.
  7. Rather than continuing to fund ever-rising health care costs, the solution is to reduce the price distortion created by third-party payer health coverage, for employers to pay higher cash wages, and to allow all workers to obtain their own affordable health insurance in an open and competitive free market.

Introduction

Since 1943, employers have been providing tax-free health benefits for employees. Wage and price controls during World War II limited employers’ ability to compete for workers by paying higher wages. Consequently, the federal government allowed employers to offer health insurance to employees as hiring and job incentives. The government also let employers deduct the cost of that insurance from their federal corporate income tax.

The wage and price controls were repealed after the war, but the policy of employer-paid health insurance has persisted. Today, half of all Americans, including government workers, receive their health benefits from their employer or their spouse’s employer.

In the case of government employees, however, taxes actually pay for those health benefits. As the cost of health insurance increases, the burden on taxpayers likewise increases. This Policy Note compares the cost of health benefits by private companies with those provided by government agencies. 

Download the full Policy Note