Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

Context: According to a recent report by the Economic Policy Institute, the percentage of Americans covered by employer-provided health insurance fell for the fifth year in a row, declining 4.1 percentage points in 2006. Nearly 4.5 million fewer Americans under the age of 65 had employer-provided health insurance in 2005 than in 2000. Had the coverage rate remained at 2000 levels, as many as 8.2 million additional people would have been covered in 2005. With health insurance costs comprising a large and growing share of total compensation paid to U.S. employees it is perhaps not surprising that coverage rates have been declining as firms look to cut labor costs. The Bureau of Labor Statistics reports that non-wage benefits in 2007 accounted for 30.2% of total compensation for the average U.S. worker. Employer expenditures on health insurance and other non-wage benefits have increased 50% faster than wages over the last ten years.

Objectives: With employer-provided fringe benefits typically offered only to permanent full-time employees, employers may cope with these trends in health insurance costs by adjusting the mix of employment away from full-time employees, increasing demand for part-time and temporary employees instead. We investigate whether rising health benefit expenses are linked to a rise in the demand for part-time employees.

Methodology: In this study we investigate the link between rising employer costs for health insurance benefits and demand for part-time workers using non-public data from the Medical Expenditure Panel Survey-Insurance Component (MEPS-IC). The MEPS-IC is a nationally representative, annual establishment survey from the Agency for Healthcare Research and Quality (AHRQ). Pooling the establishment level data from the MEPS-IC from 1996-2004 and matching with the Longitudinal Business Database and supplemental economic data from the Bureau of Labor Statistics, we estimate a reduced form model of the number of part-time workers as a proportion of all workers at each establishment. This ratio is modeled as a function of the percentage of employer health insurance contribution, establishment characteristics (e.g. total number of FTE employees, non-profit status, type of industry, percentage of low-wage workers), and state-level economic indicators. To account for potential endogeneity, benefit expenditures are estimated using instrumental variables (IVs). We account for the timing of the different observations by including year indicator variables in the econometric specification.

Results: We used establishments that offered health insurance to full-time employees but not part-time employees (N=37,635). A 5 percentage point increase in employer health insurance contribution implies a 1.33 percentage point increase in part-time employees at an establishment. After accounting for endogeneity of employer health insurance contributions using IVs (corporate status and whether establishments are part of multi-unit firms), a 5 percentage point increase in employer health insurance contribution results in a 10 percentage point increase in part-time employees working at establishments in the U.S.