Industry Variations in Health Plans and Dynamic Employment Substitution

Abstract

Using data on the U.S., we study the effects of employer-sponsored health insurance on dynamic employment substitution between 1990 and 2007 by exploiting the interindustry variation in health care coverage. We find that industries with a high health benefit structure in 1990 have experienced faster employment growth of full-time workers relative to part-time workers, while the relative wage of full-time to part-time workers has declined more in such industries. We argue that considering the dynamic responses of both firms and workers to the benefit structure is crucial to understanding our empirical findings.

Appendices

Appendix

Appendix A (Data Appendix for Fig. 1) The data are spliced from a variety of sources to form one continuous time series. Real health premiums are constructed by dividing nominal health insurance premiums by the Consumer Price Index (CPI).

1980–1985: U.S. Department of Commerce, Statistical Abstract of the United States, 1994 and 1999 editions, Washington D.C., available from.

https://www.census.gov/prod/www/statistical_abstract.html.

Average health insurance premium per capita is calculated by dividing health insurance income by population (also from the Statistical Abstract). Missing years (1981 and 1985) are interpolated by first deflating the data by the Bureau of Labor Statistics’ CPI to account for inflation. The CPI data are from the U.S. Bureau of Labor Statistics (2015) Washington D.C., CPI Detailed Report, Table 24, accessed in August 2015, http://www.bls.gov/cpi/#tables.

1986–1988: U.S. Bureau of Labor Statistics, Office of Compensation and Working Conditions (2002), Employer Costs for Employee Compensation Historical Listing (Annual), 1986–2001, Table 3, p. 12, Washington D.C., available from: http://www.bls.gov/ncs/ect/sp/ecechist.pdf.

1989–1995: U.S. General Accounting Office (February 1997), Employment-Based Health Insurance, Costs Increase and Family Coverage Decreases, Report to the Ranking Minority Member, Subcommittee on Children and Families, Committee on Labor and Human Resources, GAO/HES-97-35, U.S. Senate, Washington D.C., Appendix II, p. 33, available from: http://www.gao.gov/assets/230/223812.pdf.

1996: The Henry J. Kaiser Family Foundation (2012) California, U.S., Employer Health Benefits Annual Survey Archives, various issues, accessed in January 2015, http://kff.org/health-costs/report/employer-health-benefits-annual-survey-archives.

1997: U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality (2013) Rockville, Maryland, Medical Expenditure Panel Survey, accessed in January 2015, http://meps.ahrq.gov/mepsweb/survey_comp/Insurance.jsp.

1998–2010: Kaiser (2012). Kaiser (2015) California, U.S., Premiums and Worker Contributions Among Workers Covered by Employer-Sponsored Coverage, 1999–2014, accessed in January 2015, http://kff.org/interactive/premiums-and-worker-contributions.

Appendix B (Collection of Proofs)

Given the firm’s problem introduced in Eqs. (1) and (2), one can derive the following first-order conditions:

$$\frac{w_{it}}{p_{it}}=\frac{h_{it}^{-1/\sigma }{\lambda}_{it}^{\left(\sigma -1\right)/\sigma }}{{\left(\tilde{h}_{i}t\right)}^{\left(\sigma -1\right)/\sigma }+{\left({\lambda}_{it}{h}_{it}\right)}^{\left(\sigma -1\right)/\sigma }}$$

(A.1)

$$\frac{w_{it}}{p_{it}}=\frac{h_{it}^{-1/\sigma }{\lambda}_{it}^{\left(\sigma -1\right)/\sigma }}{{\left(\tilde{h}_{i}t\right)}^{\left(\sigma -1\right)/\sigma }+{\left({\lambda}_{it}{h}_{it}\right)}^{\left(\sigma -1\right)/\sigma }}$$

(A.2)

By dividing Eq. (A.1) by (A.2) and rearranging the terms, one would get the Eq. (3) in the main text. Differentiating Eq. (3) with respect to wage would yield the following equation, which proves Proposition 1.

$$\frac{\partial\log(\frac{h_{it}}{{\widetilde h}_it})}{\partial\log w_{it}}=-\sigma<0$$

(A.3)