1. Measuring Wage Adjustments for Health Insurance Benefits Patricia Ketsche, Ph.D. William Custer, Ph.D. Georgia State University

2. Employment Based Health Insurance and Risk Pooling Risk pooling in EBHI depends upon how wages adjust in the presence of coverage Theory: Workers with coverage receive lower cash wages than similarly productive workers without coverage Econometric Problem: Higher wages associated with coverage Need to identify system of equations

3. Theoretical Model Coverage offered if C<=V

4. Theoretical Model Low-wage workers value health insurance less than high-wage workers Employers have institutional reasons to foster participation by low-wage workers. ERISA Risk pooling Minimum participation requirements Effect of coverage on returns to tenure may be greater for low-wage workers More likely to decline offered coverage Effect of decliners on observed wages diminishes over time

5. Model: Empirical Specification Separate models for high- and low-wage earners Control for composition of total compensation Joint estimation of wage equation and probability of coverage Identification through state policy variables regarding coverage market family income number of children family member in poor health

6. Data Linked data from March CPS and February Job Tenure and Occupation Mobility Supplement: 1996 and 1998 Direct measure of job tenure Presence/absence of coverage No measure of offer/acceptance If low-wage workers more likely to decline offered coverage, observed wage is net of employer paid premium Sample 57,011 observations High- and low wage workers defined by local median

7. Means High WageLow Wage Age41.436.1 Current job tenure9.74.7 Own EB health insurance82%46% Own health status fair or poor3.5%6.5% Family member health status fair or poor4.5%7.2% Average annual wages $ 49,476 $13,675

8. Results

9. Sensitivity to low wage definition Results hold if lower quartile is used to segregate workers Predictive power of low wage equations fall Effect of coverage on returns to 1 additional year tenure 6% higher with coverage for high-wage earners 28% lower with coverage for low-wage earners

10. Summary: Among high wage workers, coverage Reduces wages substantially Slight increase in returns to tenure Among low wage workers, coverage Increases wages Decreases returns to tenure

11. Policy Relevance Supports notion of risk pooling between high- and low-wage workers. Suggest that short- and long-term wage effects of coverage will vary by worker type Suggests need for further work in estimating wage effects by worker type while controlling for total compensation