The Impact of Minimum Wage Increases on the Provision of Employer-Sponsored Insurance Jessica Vistnes (co-author: Kosali Simon, Indiana University)

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Presentation transcript:

The Impact of Minimum Wage Increases on the Provision of Employer-Sponsored Insurance Jessica Vistnes (co-author: Kosali Simon, Indiana University)

Background Large changes in federal and state minimum wages from Large changes in federal and state minimum wages from Most studies of minimum wages have focused on employment effects Most studies of minimum wages have focused on employment effects – However, it is also important to understand how fringe benefits react Particularly if unintended consequences Particularly if unintended consequences There is a small literature on the effect of minimum wages on health insurance There is a small literature on the effect of minimum wages on health insurance – All studies use data from Current Population Survey – Therefore, no data on workforce characteristics Important information because of group nature of employers’ health insurance decisions Important information because of group nature of employers’ health insurance decisions

Minimum Wage Activity Federal minimum wage changes Federal minimum wage changes – 2007 to 2009 in steps from $5.15-$7.25 – First change in federal minimum wage in a decade (Fair Minimum Wage Act 2007) State activity high State activity high – 129 instances of states changing minimum wages over this time period u Average change : 51.6 cents u Range: 10 cents to $1.80

Offer Rates YearFirm SizeOffer RateEligibility Rate 2000 All88.97%78.98% < %83.77% %78.57% %75.11% %77.93% %80.00% 2008 All87.10%***78.22% < %***83.25% %*78.56% %***74.91% %76.38% %79.23%

Offers of Dependent Coverage YearFirm SizeOffer Family Coverage Offer Any Dependent Coverage 2000 All98.82%***98.95%*** < %***89.43%*** %***97.11%*** %***98.80%* %***99.94%*** % 2008 All97.21%98.09% < %82.57% %93.25% %97.95% %99.60% %99.99%

Prior Literature on Minimum Wages and Health Insurance Royalty (2000, working paper) Royalty (2000, working paper) Simon and Kaestner (2004) Simon and Kaestner (2004) Marks (2011) Marks (2011)

Data MEPS-Insurance Component, private sector establishments MEPS-Insurance Component, private sector establishments – 235,000 establishments, 230,000 plans Advantages: Advantages: – Many dependent variables – Contains wage distribution within the establishment % of workers with low wage, middle and high- wages % of workers with low wage, middle and high- wages u Cutoff in 2008 is $25.50 Disadvantage Disadvantage – Limited ability to examine whether plans differ by wage level

Dependent Variables Establishment-level outcomes : Establishment-level outcomes : – Establishment offers health insurance – Eligibility rate, subset to establishments who offer – Offers family coverage – Offers any dependent coverage (either employee-plus-one or family coverage)

Dependent Variables (continued) Plan-level outcomes: Plan-level outcomes: – Annual total employee contributions for single and family coverage (in dollars and in shares of total premiums), – Single deductible levels – Actuarial value – Single premium /Actuarial value – Plan is an HMO – Plan is a PPO

Other Explanatory Variables Firm size Firm size Industry Industry Age of business Age of business Ownership type Ownership type Non-profit status Non-profit status Whether the establishment is located in an MSA Whether the establishment is located in an MSA The proportion female, age 50 and older, union members The proportion female, age 50 and older, union members State fixed effects, Year fixed effects State fixed effects, Year fixed effects County unemployment rate County unemployment rate

Hypothesis and Method Minimum wage effects will be larger at establishments with a higher concentration of low-wage workers Minimum wage effects will be larger at establishments with a higher concentration of low-wage workers We test our hypothesis by: We test our hypothesis by: – Comparing establishments with different levels of low-wage workers to those with no low- wage workers (Difference-in-Difference) – Identification comes from state increases above federal minimum wage levels

Wage Categories Wage categories defined as: Wage categories defined as: – ALL_LOW (100% of workers are low-wage) – MOSTLY_LOW (>=50% of workers are low- wage) – SOME_LOW (>0 and 0 and <50% of workers) – NO_LOW (no workers are low-wage)

Model Y i = α + β 1 * X i,st + β 1 * X i,st + β 2 * ALL_LOW i,st + β 2 * ALL_LOW i,st + β 3 * MOSTLY_LOW i,st + β 3 * MOSTLY_LOW i,st + β 4 * SOME_LOW i,st + β 4 * SOME_LOW i,st + β 5 * MINWAGE i,st + β 5 * MINWAGE i,st + Γ 1 * ALL_LOW i,st * MINWAGE st + Γ 2 * MOSTLY_LOW i,st * MINWAGE st + Γ 3 * SOME_LOW i,st * MINWAGE st + ε i

Offer Proportion Eligible Offered Family Coverage Offered Any Dependent Coverage All_Low* Minwage *** ***-0.038** Most_Low* Minwage *** Some_Low* Minwage *0.012*** Minwage **-0.018*** R-squared OLS Models of Establishment-Level Health Insurance Outcomes

Single Employee Contribution Employee Share of Single Premium Family Employee Contribution Employee Share of Family Premium Single Deductible All_Low* Minwage Most_Low* Minwage ** Some_Low* Minwage * Minwage * *** R-squared Selected OLS Results for Plan-Level Outcomes

Plan Actuarial Value Total Premium/ Actuarial Value HMOPPO All_Low*Minwage * Most_Low*Minwage0.003* Some_Low*Minwage Minwage0.003*** R-squared Selected OLS Results for Plan Level Outcomes (continued)

Sensitivity checks Does Medicaid/CHIP policy confound results? Does Medicaid/CHIP policy confound results? – Our results generally unchanged by inclusion of Medicaid/CHIP simulated eligibility variable

Conclusions Minimum wage increases led to: Minimum wage increases led to: – Decreases in offer rates among entirely and majority low-wage employers Among those who offered: Among those who offered: Reductions in offers of family coverage and any dependent coverage Reductions in offers of family coverage and any dependent coverage u For entirely low-wage employers No change in eligibility rates No change in eligibility rates No change or inconsistent change for plan level outcomes No change or inconsistent change for plan level outcomes

Next Steps New outcomes New outcomes – Other fringe benefits – Take-up rate (corresponds to CPS question) – Whether employee premium contributions are positive or zero Alternative ways to measure minimum wage Alternative ways to measure minimum wage – % increase rather than absolute increase – % of the real median wage in the state, from the CPS – Within specific industries