How Does Health Insurance Affect Firm Employment and Performance? Evidence from Obamacare

Abstract

This paper studies how mandating employers to provide health insurance of a minimum quality and the associated increases in health insurance premia affect firm employment and performance. Using hand-collected firm-level employee health insurance data around the passage of the Patient Protection and Affordable Care Act (PPACA), we show that the PPACA is associated with a significant increase in health insurance premia for employees in company-sponsored health insurance plans. In response, employers with greater exposure to the PPACA reduce enrollments in their health insurance plans to a larger extent after the law was enacted. We also find evidence that employers achieve this reduction in enrollment by shifting employment composition from full-time employees to part-time, temporary, or seasonal workers, who are not covered in employer-sponsored health insurance plans. We do not find any evidence of deterioration in performance at companies that were more exposed to the increase in health insurance premia, perhaps because these companies adjust to the new regulation by changing the composition of employment towards part-time employees.