Association for Public Policy Analysis & Management

Between 2009 and 2015, several states increased the minimum wage while the federal minimum wage remained at $7.25/hr. Although many studies investigate the impact of minimum wage increases on employment outcomes of low-wage workers, very little prior work evaluates effects on employer-sponsored insurance (ESI). About 28% of those close to the state’s minimum wage reported ESI in 2009. Despite the individual and employer mandates of the Affordable Care Act (ACA) aimed at increasing the number of insured working adults, the declining trend in ESI coverage has continued since ACA implementation.

 

We explore if 2009-2015 minimum wages increases affect ESI; we also investigate whether firms are more responsive to minimum wage increases when there is greater availability of subsidized private and public insurance. Theory suggests labor markets may be more flexible in reducing employer health insurance in response to minimum wage increases when public health insurance is more available for affected workers and their families.

We use American Community Survey (2009-2015), yielding a pooled cross-sectional panel at the state/year by worker wage-level to estimate the impact of minimum increases on ESI coverage using a standard difference-in-differences identification strategy. We find an increase in the state minimum wage significantly reduces the likelihood of ESI coverage for minimum wage workers, and that these results are robust to several checks on assumptions. We do not find evidence that ACA Medicaid expansion affects the way ESI reacts to minimum wage increases. This could be due to the fact that full-time, full-year minimum wage workers generally earn above the Medicaid eligibility threshold. However, we find that minimum wages effects on ESI are statistically significant only in the post-2013 time period, suggesting that the ACA’s other insurance expansions (through Marketplace means-tested tax subsidies) itself may be providing an outside option valuable to workers near the minimum wage.