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Rising Health Insurance Premiums Have Wide-Ranging Effects

Rising health insurance premiums may result in higher unemployment, lower wages for workers with employment-based health insurance, and increasing numbers of workers shifting to part-time non-benefits-eligible employment, according to a paper published by the National Bureau of Economic Research (NBER).  Such outcomes have implications for various health care reform proposals, according to the paper’s authors.

The study quoted figures from the Kaiser Family Foundation, a nonprofit organization focusing on U.S. health care issues, concerning recent health insurance costs and trends. According to these figures—

• Since 2000, the cost of employer-provided health insurance has increased by more than 59%, with no accompanying increase in the scope of benefits provided.
• Between 2003 and 2004, health insurance premiums rose 11.2%, while wages rose 2.3%.
• In the 1990s, the number of nonelderly uninsured increased by three percentage points to 15.7% of the population, while the price of health insurance premiums grew by 34%.

The authors used an external data source—variations in medical malpractice payments—to help them identify the effect of rising health insurance premiums on wages, employment, and health insurance coverage.  According to the authors, the growth in medical malpractice payments affects not only medical malpractice premium costs, but also the cost of health insurance.

According to the analysis, the cost of rising health insurance premiums is borne primarily by workers with health insurance, in the form of decreased wages.  Furthermore, though some workers may not need or value health insurance as much as others, legal considerations may constrain employers from discontinuing coverage for only those employees who value it least.  This gives employers and workers an incentive to move from full-time jobs with benefits to part-time jobs without benefits, and the study does find that employee groups that least value health insurance—such as healthy married women who are covered under a spouse’s plan—are more likely to lose coverage as premiums rise.  Other workers, such as hourly workers whose wages are so low that they cannot be reduced to offset rising premium costs, also face a greater risk of losing coverage.

The authors argue that their findings have strong implications for health reform proposals.  For example, health insurance mandates intended to ensure that more workers have coverage could result in reduced wages for workers.  If some workers are excluded from such mandates—such as part-time workers or those at smaller firms—the authors expect employers to substitute uncovered jobs for covered ones, “undermining the net effect of the mandate on insurance rates.”  Overall, the study concludes, rising health insurance premiums will increase ranks of both the uninsured and the unemployed.

“The Labor Market Effects Of Rising Health Insurance Premiums,” NBER Working Paper No. 11160, can be purchased through the NBER website, http://papers.nber.org/papers/w11160.