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

  2. 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

  3. 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

  4. Offer Rates

  5. Offers of Dependent Coverage

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

  7. 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

  8. 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)

  9. 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

  10. 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

  11. 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

  12. 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)

  13. 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

  14. OLS Models of Establishment-Level Health Insurance Outcomes

  15. Selected OLS Results for Plan-Level Outcomes

  16. Selected OLS Results for Plan Level Outcomes (continued)

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

  18. 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

  19. 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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