Research finds that higher minimum wages reduce employer‐sponsored health insurance provision

A while ago I wrote about how there are a number of ways that employers could respond to a minimum wage hike besides laying off workers.

They can cut hours worked per worker, so that they are buying less labor, as theory would predict, but from the same number of workers. They can make employees work harder, so that there is an increase in the amount of labor they get commensurate with the increase in the price they must pay for it. And they can cut other elements of remuneration, such as health insurance, so that, while the wage they pay goes up, the total amount they are paying for labor does not. A new study finds this last mechanism in action.

Economists Mark Meiselbach and Jean Marie Abraham use the Medical Expenditure Panel Survey and changes to state and federal minimum wage laws between 2002 and 2020 to examine the relationship between changes to minimum wage laws within a state and the provision of employer health insurance. They:

…find that a $1 increase in minimum wages is associated with a 0.90 percentage point (p.p.) decrease in the percentage of employers offering health insurance, largely driven by small employers and employers with more low‐​wage employees. A $1 increase is also associated with a 1.80 p.p. increase in the prevalence of plans with a deductible and three percent increase in average deductibles. We do not find consistent evidence that other benefit characteristics are affected. We find no consequent change in uninsurance, likely explained by an increase in Medicaid enrollment.

In short, a minimum wage hike reduces the likelihood that companies with fewer than 50 employees, or those with lots of low wage workers, will offer health insurance. For those that do, higher minimum wages tend to lead to a small offsetting increase in average deductibles. Both of these represent new costs to workers.

Often, advocates of minimum wage hikes present them as the fabled “free lunch” — the workers gets better off and, to the extent that anyone gets worse off, it is some rich guy who employs them. Research finds, once again, that this just isn’t the case.