Employee Health Insurance Hurts Economic Performance

Kathleen Blanchard's picture
Employee health insurance

A new study from the RAND Corporation reveals that the cost of employer sponsored health insurance has a negative impact on the economic performance of some industries. The research looked at industries from 1987 through 2005, analyzing economic performance related to employer sponsored health insurance programs.

Thirty-eight industries were compared for changes in employment, gross economic output and value added to the gross domestic product, finding that employee sponsored health care plans inhibited economic performance. Industries that did not sponsor health insurance for employees produced more.

Neeraj Sood, lead author and a senior economist at RAND says, "This study provides some of the first evidence that the rapid rise in health care costs has negative consequences for several U.S. industries. Industries where more workers receive employer-sponsored health insurance are hit the hardest by rising health care costs."

The study, published by Health Services Research, is the first to show that excess health care cost exceeds overall growth of gross domestic product as the result of employee sponsored health insurance, a trend viewed as economically harmful for the nation. Insurance premiums have escalated.


The consequence of cutting back health insurance benefits for employees puts pressure on industries to pay higher wages. The result is less productivity and profit.

Study co-author Dr. José J. Escarce, a RAND researcher and a professor at the David Geffen School of Medicine at UCLA explains, "U.S. employers have limited wage growth and reduced health benefits to deal with rising health insurance premiums, but such strategies have not completely offset the growing burden of health care costs. Job losses and worse economic performance have been the additional consequences for industries that provide insurance to most of their workers."

Even though the result is increased employment for health care workers…”but other industries face job losses as a consequence", says Sood.

“Our findings clearly show that the rapid rise in health care costs has a measurable impact on many industries, and that it leads to a redistribution of workers from industries that provide insurance to their workers, such as manufacturing, to those that do not provide insurance," Escarce said. The study does suggest that industries who do not provide large numbers of their employees with health insurance obtain benefits. It also shows that employer sponsored health insurance hurts the economic performance of some industries more than others.

Source: RAND Corporation