How Do Health Insurance Costs Affect Low- and High-Income Workers?

47 Pages Posted: 10 Jul 2023 Last revised: 9 Apr 2024

See all articles by Janet Gao

Janet Gao

McDonough School of Business

Shan Ge

New York University (NYU) - Department of Finance

Lawrence Schmidt

MIT Sloan School of Management

Cristina Tello-Trillo

Government of the United States of America - Bureau of the Census; Yale University, Department of Economics

Date Written: August 18, 2022

Abstract

Employer-sponsored health insurance is a significant component of labor costs. We examine the causal effect of health insurance premiums on firms’ employment, both in terms of quantity and composition, and their technology investment decisions. To address endogeneity concerns, we instrument for insurance premiums using idiosyncratic variation in insurers' recent losses, which is plausibly exogenous to their customers who are employers. Using Census microdata, we show that following an increase in premiums, firms reduce employment. Relative to higher-income coworkers, lower-income workers see a larger increase in their likelihood of being separated from their jobs and becoming unemployed. Firms also invest more in information technology, potentially to substitute labor.

Keywords: Health insurance, insurer losses, worker skills, firm employment, labor composition, inequality, technology investment, automation

JEL Classification: G22, G31, G28, G18, J01, J08, J32, J22, J23

Suggested Citation

Gao, Janet and Ge, Shan and Schmidt, Lawrence and Tello-Trillo, Cristina, How Do Health Insurance Costs Affect Low- and High-Income Workers? (August 18, 2022). Available at SSRN: https://ssrn.com/abstract=4496766 or http://dx.doi.org/10.2139/ssrn.4496766

Janet Gao

McDonough School of Business ( email )

Washington, DC 20057
United States

Shan Ge (Contact Author)

New York University (NYU) - Department of Finance ( email )

New York, NY
United States

Lawrence Schmidt

MIT Sloan School of Management ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

HOME PAGE: http://https://sites.google.com/site/lawrencedwschmidt/home

Cristina Tello-Trillo

Government of the United States of America - Bureau of the Census ( email )

4600 Silver Hill Road
Washington, DC 20233-9100
United States

Yale University, Department of Economics

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

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