Pricing health benefits: A cost-minimization approach

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish (US)
Pages (from-to)931-949
Number of pages19
JournalJournal of Health Economics
Issue number5
StatePublished - Sep 2005
Externally publishedYes


  • Adverse selection
  • Benefits pricing
  • Employer-provided health insurance

ASJC Scopus subject areas

  • Health Policy
  • Public Health, Environmental and Occupational Health


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