The Effect of an Employer Health Insurance Mandate on Insurance Coverage and Labor Market Outcomes:

1
The Effect of an Employer Health Insurance
Mandate on Insurance Coverage and Labor Market
Outcomes Evidence from Hawaii

• Tom Buchmueller
• Ross School of Business, University of Michigan
• John DiNardo
• Ford School of Public Policy, University of
  Michigan
• Robert Valletta
• Federal Reserve Bank of San Francisco

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Background and MotivationEmployer-Sponsored
Insurance

• Employer-sponsored insurance (ESI) is a
  cornerstone of the US health care system.
• Roughly 90 of private coverage is through the
  workplace.
• ESI coverage has been declining gradually for
  over 2 decades.
• Policy Question Should health care reforms build
  on or reduce the role of employers?

3
Background and Motivation Employer Mandates

• One approach mandate employers to prove health
  insurance.
• Proposals by Presidential Candidates
• Edwards Require employers to provide or help
  finance health insurance for employees.
• Obama Require employers to offer meaningful
  coverage or contribute a percentage of payroll
  toward the costs of the public plan.
• Richardson Employers would be required to
  provide insurance or help finance coverage for
  their employees.
• Clinton Large employers must provide an employee
  plan or contribute to the cost of coverage.
• source www.health08.org

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Background and MotivationPrevious Mandate Bills

• Comprehensive health insurance is an idea whose
  time has come in America. Let us act now to
  assure all Americans financial access to high
  quality medical care.
• -- Richard Nixon, whose 1974 Comprehensive
  Health Insurance Plan included an employer
  mandate.
• Other prominent mandate legislation and
  proposals
• Massachusetts (1988)
• Oregon (1989)
• Washington (1993)
• Clinton Plan (1994)
• Californias SB 2 (2002)
• None of these have been enacted

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Background and MotivationPrevious Mandate Bills

• The only employer health insurance mandate ever
  enacted is Hawaiis Prepaid Health Care Act
  (PHCA).
• Received considerable attention in the health
  care reform debate of the early 1990s.
• Some saw it as a model to be emulated.
• Critics questioned the impact on coverage and
  claimed it would distort labor markets and reduce
  employment.
• But it has received very little attention from
  researchers.
• Little evidence on coverage or labor market
  effects.

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Hawaiis PHCA Timing Issues

• Enacted in 1974, the same year as Federal
  legislation (ERISA) that prohibits state coverage
  mandates.
• PHCA went into effect 1/75, but was soon
  challenged in court.
• Legal battle made it to the US Supreme Court,
  which in 1981 ruled that the PHCA was
  unconstitutional.
• Congress granted PHCA an ERISA exemption in 1983.
• What is t0?

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Hawaiis PHCA Data Limitation

• Hawaii is not separately identified in the
  Current Population Survey (CPS) until 1977.
• Health insurance is not measured in a national
  survey until March 1980 (with information on
  coverage in 1979)
• If t0 1975, it is not possible to do a pre/post
  analysis.
• If t0 1983, this is possible.

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Timing and Data Issues Implications for Research

• Despite these problems, we think it is possible
  to learn from Hawaiis experience with the PHCA.
• Coverage data suggests that the ESI rate in
  Hawaii and the rest of the US began to diverge
  around 1983.
• Suggests that t0 1983
• Costs of the mandate have increased over time as
  health insurance premiums have risen in real
  terms.
• Even if t0 1975, a post/more post analysis is
  of interest

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Overview

• Economics of employer benefit mandates
• Hawaiis PHCA
• Previous Research
• Data and Empirical Strategy
• Preliminary Results
• Tentative Conclusions and Next Steps

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The Economics of ESI

• Employer provision of health insurance can be
  explained by
• Preferential tax treatment of employer premium
  payments
• Economies of scale from group purchase
• Reduced loading charges due to risk pooling
• These factors lower the cost of ESI relative to
  purchasing insurance in the non-group market.
• Let B employer cost of health insurance aB
  employee valuation of those benefits.
• If a 1, workers are willing to accept lower
  wages in return for health insurance benefits.
• On average, we would expect a lt 1 for workers
  without ESI.
• (for low wage workers, min. wage may prevent
  offset even if a 1.)

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The Economics of an Employer Mandate
S
S
wage
B
B
If a 1
Full wage offset No change in employment
B
D
D
of workers
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The Economics of an Employer Mandate
S
S
aB
wage
B
If a lt 1
Less than full wage offset Decline in covered
employment
ltB
D
D
of workers
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The Economics of an Employer Mandate
S
S
wage
If minimum wage binds
Min wage
Larger decline in employment
D
D
of workers
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Empirical Implications

• Effect of a mandate should be strongest on
  workers who are least likely to receive ESI in a
  voluntary market.
• Low skill workers
• Younger workers
• minorities
• Employees of small firms.
• If wages of these workers cannot fully adjust, we
  would expect covered employment to fall. Either
• Employment ?
• Employment in exempt categories ?

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Hawaiis PHCA Coverage

• Covers all private sector employers (no firm size
  exemption)
• Employers must provide insurance for all workers
  except
• Part-time (less than 20 hrs/week)
• New hires (employed less than 4 consecutive
  weeks)
• Very low wage (86.67 x min wage)
• Seasonal employees
• Paid by commission
• Employees may decline if they have coverage from
  another source or for religious reasons.

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Hawaiis PHCA Benefits and Cost Sharing

• Minimum benefit package
• Inpatient outpatient hospital
• Physician services
• Lab X-ray
• Maternity services
• Employee contribution for single coverage capped
  at 50 of premium or 1.5 of monthly gross wage.

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Previous Research Hawaiis PHCA

• Effects on Insurance Coverage
• Dick (1994)
• uses March CPS for 1986-1988 to analyze
  uninsured
• Cross-tabs and unreported regressions
• Results very small diff in uninsured rate
  between Hawaii US
• Claims this diff is explained by Xs
• Thurston (1997)
• cites 1969 data hospital insurance coverage
  88 for Hawaii, 87 for US
• March CPS, 1990-93 ESI rate for workers 71 for
  Hawaii, 59 for US
• Gap varies by industry

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Previous Research Hawaiis PHCA

• Effects on Insurance Coverage
• Kronick et al. (2004)
• March CPS for 1996-2002
• Document differences in ESI coverage across
  states
• Hawaiis ESI rate is 10 above rate predicted by
  regression
• Lee et al (2005)
• March CPS for 1994-2004
• Also find a significantly higher rate of ESI for
  Hawaii

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Kronick et als Results
Hawaii
Michigan
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Previous Research Hawaiis PHCA

• Effects on Wages
• Thurston (1997) uses aggregated Census data (1970
  1990) to test for differential wage growth
  between industries that should have been more or
  less affected by mandate.
• Key explanatory variable ESI coverage in
  Hawaii in 1990 less in US
• Within Hawaii, wages grew less in industries
  where gap was larger.
• Consistent with a wage offset
• But offset disappears when other states used as
  within-industry controls

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Previous Research Hawaiis PHCA

• Effects on Hours
• Thurston (1997) uses same Census data (1970
  1990)
• Dependent variable D low hours Hawaii D
  low hours US
• Explanatory variable ESI coverage in Hawaii -
  ESI coverage US
• Results imply an increase in low hour employment
  in Hawaii
• Lee et al (2005)
• Matched cross-tab no difference in the working
  lt 20 hrs/week
• CDF suggests spike at 20
• No evidence on employment effects.

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Data Current Population Survey, 1979-2006

• March Annual Demographic Files
• Insurance for prior year
• Wages for longest job held last year
• Employment, hours last week
• Demographic controls
• Merged Outgoing Rotation Group (MORG) Files
• Larger samples
• Better wage variable
• Employment, hours last week
• Demographic controls

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Testing for Heterogeneous Treatment Effects

• Simple approach stratify by education
• High school or less vs. College or more
• Adapted propensity score approach (next
  iteration)
• Use March data from rest of US
• Predict logit of own name ESI
• Use fitted values to calculate propensity of
  obtaining ESI in full sample
• Stratify analysis by predicted propensity

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Hypotheses

• Effects of mandate should be strongest for
  workers who are least likely to receive ESI in a
  voluntary market.
• Little reason to expect an effect on workers who
  have high rates of ESI coverage in the rest of
  the US.
• Cost of mandate has increased over time as health
  care costs have grown faster than inflation and
  total compensation.
• Look for divergence between Hawaii and the rest
  of the US.

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Single Coverage Premiums in Hawaii
(2006)1974-2007
Notes Premium data are from HMSA, Hawaiis
largest insurer. Single coverage premium amounts
are converted to an hourly amount assuming a
full-time schedule of 40 hours/week.
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Results Coverage

• Trends in ESI Coverage, 1979 to 2005
• All Private Sector Workers
• By Education (HS or less, College or more)
• Distribution of Coverage, 2002-2005

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Table 1. The Distribution of Insurance Coverage
2002-2005
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Table 1. The Distribution of Insurance Coverage
2002-2005
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Analyzing Labor Market Outcomes

• Outcomes
• For private sector employees
• Log wages
• Short hours (usual hours lt 20/week)
• For all working age adults
• Employment
• Testing for a divergent trend in adjusted
  outcomes
• Run Yi Xib g Hawaii St dt Yeart St qt
  Hawaii x Yeart
• Collect qs
• Run weighted least squares regression of q on t

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DlnW .074 .002 x Hawaii
(.026) (.001)
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DlnW .137 .003 x Hawaii
(.026) (.001)
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DlnW -.009 .0023 x Hawaii
(.028) (.0016)
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Effect on Hours Worked

• Unadjusted Trends in Percent Low Hour Part-time
  (lt20/week)
• Results from OLS regressions
• Logit coefficients have similar pattern, but are
  harder to interpret

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DPT -.012 .0006 x Hawaii
(.004) (.0002)
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DPT -.013 .0007 x Hawaii
(.003) (.0002)
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DPT -.005 .0002 x Hawaii
(.003) (.0002)
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Employment Effects

• Unadjusted Trends
• OLS Regressions

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DEmployed .059 .0006 x Hawaii
(.007) (.0004)
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DEmployed .064 .0013 x Hawaii
(.010) (.0013)
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DEmployed .040 .0001 x Hawaii
(.009) (.0005)
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Conclusions Coverage

• ESI rates in Hawaii and rest of US began to
  diverge around 1982.
• Effect of mandate was to limit erosion of
  coverage.
• Gap in overall coverage rate has been relatively
  constant at around 10-12 points since the early
  1990s.
• Larger effect on workers that are least likely to
  receive ESI.
• Effect on ESI is not significantly offset by
  reductions in other sources of coverage.

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Tentative Conclusions Wages

• Some evidence of a lower wage growth in Hawaii
  since 1980
• Consistent with wage offset
• But timing is suspect
• (Regressions using March data yield similar
  results for less educated workers, no effect for
  highly educated workers)

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Tentative Conclusions Hours and Employment

• Maybe some evidence of shift to exempt
  part-time workers
• Significant for full sample and less educated
  workers
• But, again, timing is weird
• Magnitude is very small
• Little evidence of an effect on employment

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Next Steps

• Coverage
• Permutation tests definitively show that Hawaii
  vs. US. diff is not driven by Xs
• Labor Market Outcomes
• More parameterized models
• Control for industry, occupation
• Additional tests?
• Standard errors