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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 2000-2008 Most studies of minimum wages have focused on employment effects

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The Impact of Minimum Wage Increases on the Provision of Employer-Sponsored Insurance

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The impact of minimum wage increases on the provision of employer sponsored insurance

The Impact of Minimum Wage Increases on the Provision of Employer-Sponsored Insurance

Jessica Vistnes

(co-author: Kosali Simon, Indiana University)


Background

Background

  • Large changes in federal and state minimum wages from 2000-2008

  • 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

  • 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


Minimum wage activity 2000 2008

Minimum Wage Activity 2000-2008

  • 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 2000-2008

    • 129 instances of states changing minimum wages over this time period

      • Average change : 51.6 cents

      • Range: 10 cents to $1.80


Offer rates

Offer Rates


Offers of dependent coverage

Offers of Dependent Coverage


Prior literature on minimum wages and health insurance

Prior Literature on Minimum Wages and Health Insurance

  • Royalty (2000, working paper)

  • Simon and Kaestner (2004)

  • Marks (2011)


The impact of minimum wage increases on the provision of employer sponsored insurance

Data

  • 2000-2008 MEPS-Insurance Component, private sector establishments

    • 235,000 establishments, 230,000 plans

  • Advantages:

    • Many dependent variables

    • Contains wage distribution within the establishment

      • % of workers with low wage, middle and high-wages

        • Cutoff in 2008 is < $11, $11-25.50, >$25.50

  • Disadvantage

    • Limited ability to examine whether plans differ by wage level


Dependent variables

Dependent Variables

  • 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

Dependent Variables (continued)

  • 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

Other Explanatory Variables

  • Firm size

  • Industry

  • Age of business

  • Ownership type

  • Non-profit status

  • Whether the establishment is located in an MSA

  • The proportion female, age 50 and older, union members

  • State fixed effects, Year fixed effects

  • County unemployment rate


Hypothesis and method

Hypothesis and Method

  • Minimum wage effects will be larger at establishments with a higher concentration of low-wage workers

  • 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

  • Wage categories defined as:

    • ALL_LOW (100% of workers are low-wage)

    • MOSTLY_LOW (>=50% of workers are low-wage)

    • SOME_LOW (>0 and <50% of workers)

    • NO_LOW (no workers are low-wage)


Model

Model

Yi= α +

β1 * Xi,st +

β2 * ALL_LOWi,st +

β3 * MOSTLY_LOWi,st+

β4 * SOME_LOWi,st +

β5 * MINWAGEi,st+

Γ1 * ALL_LOWi,st * MINWAGEst+

Γ2 * MOSTLY_LOWi,st * MINWAGEst+

Γ3 * SOME_LOWi,st* MINWAGEst +εi


Ols models of establishment level health insurance outcomes

OLS Models of Establishment-Level Health Insurance Outcomes


Selected ols results for plan level outcomes

Selected OLS Results for Plan-Level Outcomes


Selected ols results for plan level outcomes continued

Selected OLS Results for Plan Level Outcomes (continued)


Sensitivity checks

Sensitivity checks

  • Does Medicaid/CHIP policy confound results?

    • Our results generally unchanged by inclusion of Medicaid/CHIP simulated eligibility variable


Conclusions

Conclusions

  • Minimum wage increases led to:

    • Decreases in offer rates among entirely and majority low-wage employers

  • Among those who offered:

    • Reductions in offers of family coverage and any dependent coverage

      • For entirely low-wage employers

    • No change in eligibility rates

    • No change or inconsistent change for plan level outcomes


Next steps

Next Steps

  • 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

    • % increase rather than absolute increase

    • % of the real median wage in the state, from the CPS

    • Within specific industries


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