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

Slide presentation from the AHRQ 2011 conference.

On September 19, 2011, Jessica Vistnes made this presentation at the 2011 Annual Conference. Select to access the PowerPoint® presentation (190 KB). Plugin Software Help.


Slide 1

 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)

Slide 2

 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.

Slide 3

 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.

Slide 4

 Offer Rates

Offer Rates

YearFirm SizeOffer RateEligibility Rate
2000All88.97%78.98%
<1046.58%83.77%
10-2471.51%78.57%
25-9988.40%75.11%
100-99996.84%77.93%
1000+99.38%80.00%
2008All87.10%***78.22%
<1043.66%***83.25%
10-2468.79%*78.56%
25-9983.68%***74.91%
100-99995.84%76.38%
1000+98.94%79.23%

Slide 5

 Offers of Dependent Coverage

Offers of Dependent Coverage

YearFirm SizeOffer Family CoverageOffer Any Dependent Coverage
2000All98.82%***98.95%***
<1088.05%***89.43%***
10-2496.82%***97.11%***
25-9998.62%***98.80%*
100-99999.93%***99.94%***
1000+99.97%99.97%
2008All97.21%98.09%
<1076.55%82.57%
10-2489.38%93.25%
25-9996.75%97.95%
100-99999.38%99.60%
1000+99.94%99.99%

Slide 6

 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).

Slide 7

 Data

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.

Slide 8

 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).

Slide 9

 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 health maintenance organization (HMO.
    • Plan is a preferred provider organization (PPO).

Slide 10

 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.

Slide 11

 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.

Slide 12

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).

Slide 13

 Model

Model

  • Υi= 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

Slide 14

 OLS Models of Establishment-Level Health Insurance Outcomes

OLS Models of Establishment-Level Health Insurance Outcomes

 OfferProportion EligibleOffered Family CoverageOffered Any Dependent Coverage
All_Low* Minwage-0.016***0.000-0.047***-0.038**
Most_Low* Minwage-0.019***-0.0050.0030.006
Some_Low* Minwage-0.006-0.0020.009*0.012***
Minwage0.0040.002-0.013**-0.018***
R-squared0.380.230.150.11

Slide 15

 Selected OLS Results for Plan-Level Outcomes

Selected OLS Results for Plan-Level Outcomes

 Single Employee ContributionEmployee Share of Single PremiumFamily Employee ContributionEmployee Share of Family PremiumSingle Deductible
All_Low* Minwage4.941-0.001134.9040.015-48.371
Most_Low* Minwage-1.596-0.008**29.6360.000-10.497
Some_Low* Minwage25.106*0.00210.251-0.002-6.546
Minwage-27.640*-0.00212.8460.005-45.324***
R-squared0.060.090.140.120.14

Slide 16

 Selected OLS Results for Plan Level Outcomes (continued)

Selected OLS Results for Plan Level Outcomes (continued)

 Plan Actuarial
Value
Total Premium/
Actuarial Value
HMOPPO
All_Low* Minwage0.005-194.816*0.0180.007
Most_Low*Minwage0.003*-40.0910.0040.002
Some_Low*Minwage-0.001-11.828-0.0040.003
Minwage0.003***-37.2690-0.008
R-squared0.110.180.050.08

Slide 17

 Sensitivity Checks

Sensitivity Checks

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

Slide 18

 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.

Slide 19

 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.
Page last reviewed March 2012
Internet Citation: The Impact of Minimum Wage Increases on the Provision of Employer-Sponsored Insurance. March 2012. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/news/events/conference/2011/vistnes/index.html