Pricing health benefits: a cost-minimization approach.
We study the role of health benefits in an employer's compensation strategy, given the overall goal of minimizing total compensation cost (wages plus health-insurance cost). When employees' health status is private information, the employer's basic benefit package consists of a base wage and a moderate health plan, with a generous plan available for an additional charge. We show that in setting the charge for the generous plan, a cost-minimizing employer should act as a monopolist who sells "health plan upgrades" to its workers, and we discuss ways tax policy can encourage efficiency under cost-minimization and alternative pricing rules.
Miller
Nolan H
NH
John F. Kennedy School of Government, 79 J.F. Kennedy Street L103, Harvard University, Cambridge, MA 02138, USA. nolan_miller@harvard.edu
D003363:Cost Control; D006264:Health Benefit Plans, Employee / Q000191:economics* / Q000458:organization & administration / Q000706:statistics & numerical data; D018803:Models, Economic; D014481:United States