2. THE ECONOMICS OF EMPLOYEE BENEFITS
Chapter 2
THE ECONOMICS OF EMPLOYEE BENEFITS
McGraw-Hill/Irwin
Copyright © The McGraw-Hill Companies, Inc. All rights reserved.

3. WHY OFFER BENEFITS The Employer Has A Cost Advantage
It Helps in Recruiting Certain
Types of Workers
Tax Incentives

4. COST ADVANTAGE Health Insurance Cost Employer $1000 Per Employee
Each Employee To Purchase On Own,
$2,500
Employees Benefit if Pay Deduction is
Less than $2500
Employer Benefits If It Deducts More
than $1000

5. 2000 AVERAGE MEDICAL EXPENDITURES
$920 Per Child
$1481 Per Adult Age
$3154 Per Adults Age
$5864 Per Adult 65 and Older
Higher For Women Than Men
Higher For Whites Than For
Minorities

6. TAX INCENTIVES Employee At 25% Tax Rate. $1,000 Raise, $250 to IRS
$1,000 Health Care Plan
Employee Receives Total Benefit
Employee Would Have To Earn
$ Pretax to Pay for it.

7. BENEFIT VALUE Option 1 $90,000 No Insurance
Option 2 $75,000 with Insurance
Benefit to Employee Only if Value
is Greater than $15,000

8. WHO SHOULD PAY $100,000 Employee’s Salary $10,000 Insurance Increase
Employer Reduces Profits by
$10,000 per Employee? Or
Employee Pay is Cut to $90,000?

9. WHY RATE INCREASES Improved, Expensive Technology Higher Care Quality
Physicians’ Unionization
Increased Use of Benefit
Smaller Workforce

10. WHO PAYS $100,000 Salary to Attract Lawyer Would $80,000 & $20,000
Insurance Attract?
Insurance Rate Increases $5000
Would $75,000 & $25,000 Still
Attract?

11. COVERAGE Single Coverage - 78% Family Coverage - 90%
Single Rate - $60.24
Family Rate - $228.98