This paper estimates the trade-off between salary and health insurance costs using a unique data source on salary and benefits provided to public school teachers in over 800 schools districts in Illinois between 1991 and 2008. This is an interesting and unique source of data to study for several reasons: first, unlike nearly all other data sources, we know the full cost of employees’ health insurance plans and the fraction of that cost that is nominally paid by the teacher (through the so-called premium copayment). Employees pay about a quarter of the cost of health insurance directly through these premium copayments. Our paper is the first to assess whether adjustments in compensation come through changes in wages, changes in premium copayments, or some combination of the two. Second, pay and benefits in the public sector have recently become a focus of public debate. Recent attempts in Wisconsin and Ohio to curb public sector collective bargaining rights were predicated, in part, on the desire to reduce employee benefits and compensation costs more generally.Our analysis indicates that total health insurance costs rose for Illinois teachers at the same rate as they did more broadly. We find no evidence that changes teachers’ salaries within a district over time are related to changes in insurance premiums. Teachers pay about 15 percent of the cost of individual health insurance and about 40 percent of the cost of their family members’ plans through premium copayments. While the level of premium copayments has risen over time, the fraction of the cost paid through premium copayments has remained stable. We find no evidence that rising health insurance premiums reduce districts’ demand for teachers or that districts substitute less-experienced teachers when health costs rise. Taken together, these findings indicate that rising health insurance costs raise total compensation costs. Finally, about a third of these costs are passed on to local taxpayers through higher property taxes.