Absence of conflict of interest.
Citation
Dworsky, M. S., Eibner, C., Nie, X., & Wenger, J. B. (2022). The effect of the minimum wage on employer-sponsored insurance for low-income workers and dependents. American Journal of Health Economics, 8(1), 99–126. https://doi.org/10.1086/716198
Highlights
- The study's objective was to examine the impact of state and federal minimum wage increases on employer-sponsored health insurance (ESI) coverage for families with low incomes. The study also examined the impact of minimum wage increases on Medicaid coverage and overall health insurance coverage for families with low incomes.
- Using data from the Current Population Study (CPS) from 2005 through 2016 and alongside time-varying state minimum wage data, the authors conducted a nonexperimental statistical analysis to examine the effect of minimum wage increases on employer-sponsored health insurance coverage, Medicaid coverage, and health insurance coverage.
- The study found that minimum wage increases were associated with statistically significant reductions in ESI coverage for families with incomes below 300 percent of the federal poverty level.
- For the ESI coverage outcome, the quality of causal evidence presented in this study is moderate because it was based on a well-implemented non-experimental design. This means we are somewhat confident that the estimated effects on ESI coverage are attributable to the minimum wage increases, but other factors might also have contributed. For the Medicaid coverage and overall health insurance coverage outcomes, the quality of causal evidence presented in this study is low because the authors were not able to demonstrate that differences in these outcomes were due to minimum wage increases and not to other time-varying factors, such as the expansion of Medicaid eligibility under the Affordable Care Act.
Intervention Examined
Minimum Wage Increases
Features of the Intervention
Minimum wage increases are intended to improve well-being by increasing workers' earnings. However, it has been hypothesized that such increases might have effects on nonwage compensation such as employer-sponsored health insurance (ESI). Instead of an increase in the minimum wage corresponding with an increase in total compensation, employers providing health insurance might choose to decrease workers’ health insurance benefits by ending their ESI coverage, offering less generous ESI coverage, reducing employer premium contributions, or adjusting the ESI offer to discourage enrollment. Employers with family coverage options might modify family coverage to cut costs, such as dropping coverage for spouses or increasing employees' premium contributions for dependents.
Features of the Study
The authors used a nonexperimental design to examine the effect of minimum wage increases on employer-sponsored health insurance. The authors also examined the effect of minimum wage increases on Medicaid coverage and on any type of insurance coverage.
The study included nonelderly adults (under age 64) and children in families with incomes below 300 percent of the federal poverty level, in which there was at least one working adult with wage and salary employment in the previous calendar year. The authors excluded self-employed non-elderly family members as well as households in which the household head or the spouse was in the armed forces during the reference period. The authors recoded individuals age 26 or older who were dependent children as single-individual families.
The analytic sample included a total of 745,664 individuals. The average age was 26. The sample was 49% white non-Hispanic, 17% Black non-Hispanic, and 28% Hispanic. More than three-quarters of the analytic sample (76%) reported having any health insurance coverage with nearly half (47%) reporting having ESI coverage and a quarter (25%) reporting Medicaid coverage. Nealy half of workers in the analytic sample (47%) reported hourly earnings below 150% of the minimum wage while a fifth of workers in the analytic sample (20%) reported hourly earnings at or below minimum wage.
The authors measured health insurance coverage and demographic characteristics using data from the 2005-2016 Current Population Survey Annual Social and Economic Supplement (CPS ASEC), which covered the period from 2004 through 2015. The authors obtained data on state minimum wage levels for this period from the authors of a previous study.
Findings
- Employer benefits receipt [Moderate Evidence Rating]. The study found that a $1 increase in the minimum wage reduced the probability of ESI coverage by 0.99 percentage points.
- Public benefits receipt [Low Evidence Rating]. The study found that a $1 increase in the minimum wage was associated with a 1.05 percentage point increase in the probability of Medicaid coverage. The study did not detect any statistically significant association between minimum wage levels and overall insurance coverage.
Considerations for Interpreting the Findings
To address the possibility that changes in health insurance coverage reflect time-varying changes in Medicaid eligibility, rather than time-varying changes in minimum wage levels, the authors employ a simulated control variable that controls for the proportion of each state’s population expected to be eligible for Medicaid under the income limits in place in each state in each year.
The authors demonstrate that their results estimating the association between minimum wage levels and ESI are robust to alternative controls for Medicaid eligibility, analysis specifications, and other sources of potential confounding.
However, the authors note that the association between minimum wage levels and Medicaid coverage or overall health insurance coverage are sensitive to the specification of the Medicaid eligibility control variable as well as other robustness checks. That is, we cannot be certain that differences in these the Medicaid coverage and overall health insurance coverage outcomes are due to changes in state minimum wage levels; other factors, such as changes to Medicaid eligibility following the passage of the Affordable Care Act, are likely to have contributed to these differences.
Causal Evidence Rating
For the employer-sponsored benefits receipt outcome, the quality of causal evidence presented in this study is moderate because it was based on a well-implemented non-experimental design. This means we are somewhat confident that the estimated effects are attributable to the minimum wage increases, but other factors might also have contributed.
For the public benefits receipt outcomes, the quality of causal evidence presented in this study is low, because differences in outcomes might be due to other time-varying factors (such as Medicaid expansion). This means we are not confident that the estimated effects are attributable to minimum wage increases; other factors are likely to have contributed.