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– 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

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

Year Firm Size Offer Rate Eligibility Rate

2000

All 88.97% 78.98%<10 46.58% 83.77%

10-24 71.51% 78.57%25-99 88.40% 75.11%

100-999 96.84% 77.93%1000+ 99.38% 80.00%

2008

All 87.10%*** 78.22%<10 43.66%*** 83.25%

10-24 68.79%* 78.56%25-99 83.68%*** 74.91%

100-999 95.84% 76.38%1000+ 98.94% 79.23%

Offers of Dependent Coverage

Year Firm Size Offer Family CoverageOffer Any Dependent

Coverage

2000

All 98.82%*** 98.95%***<10 88.05%*** 89.43%***

10-24 96.82%*** 97.11%***25-99 98.62%*** 98.80%*

100-999 99.93%*** 99.94%***1000+ 99.97% 99.97%

2008

All 97.21% 98.09%<10 76.55% 82.57%

10-24 89.38% 93.25%25-99 96.75% 97.95%

100-999 99.38% 99.60%1000+ 99.94% 99.99%

Prior Literature on Minimum Wages and Health Insurance

Royalty (2000, working paper)

Simon and Kaestner (2004)

Marks (2011)

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

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: – 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 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

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 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

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

Offer   

Proportion Eligible

 

Offered Family Coverage 

Offered Any Dependent Coverage 

All_Low*Minwage

-0.016*** 0.000 -0.047*** -0.038**

Most_Low*Minwage

-0.019*** -0.005 0.003 0.006

Some_Low*Minwage

-0.006 -0.002 0.009* 0.012***

Minwage 0.004 0.002 -0.013** -0.018***

R-squared 0.38 0.23 0.15 0.11

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

4.941 -0.001 134.904 0.015 -48.371

Most_Low*Minwage

-1.596 -0.008** 29.636 0.000 -10.497

Some_Low*Minwage

25.106* 0.002 10.251 -0.002 -6.546

Minwage -27.640* -0.002 12.846 0.005 -45.324***

R-squared 0.06 0.09 0.14 0.12 0.14

Selected OLS Results for Plan-Level Outcomes

Plan Actuarial Value

Total Premium/Actuarial Value

HMO PPO

All_Low*Minwage 0.005 -194.816* 0.018 0.007

Most_Low*Minwage 0.003* -40.091 0.004 0.002

Some_Low*Minwage -0.001 -11.828 -0.004 0.003

Minwage 0.003*** -37.269 0 -0.008

R-squared 0.11 0.18 0.05 0.08

Selected OLS Results for Plan Level Outcomes (continued)

Sensitivity checks

Does Medicaid/CHIP policy confound results?

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

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

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