Employers' Benefits from Workers' Health Insurance

Most nonelderly americans receive their health insurance coverage through their workplace. Almost all large firms offer a health insurance plan, and even though they face greater barriers to providing coverage, so do the majority of very small firms. These employment‐based plans cover two‐thirds of nonelderly Americans and pay most of working families' expenses for health care and about one‐quarter of national health spending. Despite employers' role in the health insurance market, however, very little attention has been paid to employers' motivations for providing health insurance to workers. Why do employers offer health insurance to workers? Is it because workers want it? Because their unions demand it? Or do employers offer health benefits to workers because their productivity and profitability depend on it? The standard economic theory of the availability of employer‐provided health insurance focuses on worker demand (Cutler 1997; Pauly 1997; Summers 1989). Even though many employers believe that health insurance and health affect employees' productivity and firms' performance, health economists typically overlook and rarely measure firms' returns on health‐related investments. Some research, however, suggests that firms may benefit economically by providing health insurance coverage for workers and their families. For example, health coverage may help employers recruit and retain high‐quality workers. Health may contribute to productivity by reducing the costs of absenteeism and turnover and by increasing workers' productivity. This article reviews the evidence and proposes an agenda for future research. A better understanding of the benefits to employers of offering health coverage to workers may help clarify employers' behavior and help private employers and public officials make appropriate investments in health.