The effects of health insurance loading fees on employment choice

Abstract

This dissertation examines the impact of health insurance loading fees on the employment choices of individuals. Large firms are more likely to offer health insurance benefits and may be able to offer lower these benefits at a lower cost, or loading fee, to workers based on premium pricing practices. Individuals' sensitivity to these prices in their employment choice is largely unknown. The U.S. is undertaking significant and substantial reforms to the health insurance system including multiple reforms impacting loading fees, such as establishing federal medical loss ratio minimums and creating health insurance exchanges for the individual and employment markets. The Patient Protection and Affordable Care Act (PPACA) of 2010 introduces new options for the purchase of health insurance coverage that are not tied to employment. Using geographic variation in health insurance loading fees and individual variation in demand for healthcare, this study estimates an individual choice model between employment in large versus small firms to determine the impact of loading fees on employment decisions. It is hypothesized that individuals with greater healthcare demand may differentially prefer employment in larger firms due to the loading fees to which they are exposed.The study makes several contributions. First, it is the first study that uses the loading fee as a primary explanatory variable in an employment choice model. Second, it implements a novel method for estimating loading fees in the Medical Expenditure Panel Survey Household Component-Insurance Component (MEPS-HC-IC) Linked File through the use of an external actuarial value calculator. Third, it provides a theoretical structure to understand the economic impacts of loading fees. Finally, it contributes an econometric model structure well-suited to estimating and predicting incremental changes in loading fees. The study shows that individuals with high health demand are influenced by the loading fees in the market. The estimated loading fee gradient between small and large firms in a market area has an average marginal effect of 10.8 percentage points on the relationship between health demand and the probability of working at a large firm. This result suggests that policies that reduce the loading fee gradients between small and large firms, should expect to increase employment in small firms as a result of those with greater demands responding to the price changes. A policy simulation suggests that changes in the medical loss ratio observed in the individual market could lead to as much as 4 percentage point increase in small firm employment from 72.5% percent to 68.2% percent.