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Many people view private health insurance as a "fringe" benefit that employers bestow on their workers. But these benefits are not a gift. Employers look at what they pay their employees based on total compensation, not just on wages. As of September 2004, private sector employers paid $23.76 per hour worked in total compensation costs for employees. Benefits, including health insurance, retirement and such legally required benefits as Social Security and workers' compensation, comprised 28.6 percent of that piece.

Economists believe workers pay for health insurance by forgoing wages, which are lower than they would be if they did not have employer-based insurance. In September 2004, private-sector health benefits costs represented $1.56 per hour worked. Economists would say that a worker is likely to get that much more in hourly wages in a job without health insurance.

To the employer, the cost of health insurance is just another part of employee compensation. To the worker, health insurance is a valuable benefit that helps determine how attractive a job is. For example, a child-care worker with a health condition might be willing to trade higher hourly wages to work at a daycare center because it offered health benefits. In contrast, a younger healthier adult may opt for a job that pays slightly higher wages but does not provide health insurance.

Bottom Line: Workers pay for their own health insurance - even if nominally it is an employer-provided "fringe" benefit - by trading off salary.

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