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The Impact of the Health Insurance Market on Small Firm Employment

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  • Kanika Kapur

Abstract

Small firms that offer health insurance to their employees may face variable premiums if they hire employees with high expected health costs. To avoid expensive premium variability, small firms may attempt to maintain a workforce with low expected health costs. This results in employment distortions. I examine the magnitude of these employment distortions using the 1987 National Medical Expenditure Survey and the 1996 Medical Expenditure Panel Survey. Based on the underwriting behavior of insurance companies in 1988, I classify medical conditions into three categories: conditions that led to denial of coverage; conditions that led to exclusion restrictions; and, conditions that led to higher premiums. In 1987, I find that insured small firms were less likely to employ workers with families that had conditions that led to higher premiums than insured large firms. However, in 1996, possibly due to the passage of small group health insurance reforms that restrict insurers' ability to exclude or deny coverage, insured small firms were less likely to employ workers with denial conditions compared to insured large firms. These results suggest that the pattern of employment distortions in insured small firms is consistent with the evolving small group health insurance market. Copyright The Journal of Risk and Insurance.

Suggested Citation

  • Kanika Kapur, 2004. "The Impact of the Health Insurance Market on Small Firm Employment," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(1), pages 63-90.
  • Handle: RePEc:bla:jrinsu:v:71:y:2004:i:1:p:63-90
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    Cited by:

    1. Kanika Kapur & José J. Escarce & M. Susan Marquis & Kosali I. Simon, 2005. "Where do the sick go? Health insurance and employment in small and large firms," Open Access publications 10197/259, School of Economics, University College Dublin.
    2. Kanika Kapur & Pinar Karaca‐Mandic & Susan M. Gates & Brent Fulton, 2012. "Do Small‐Group Health Insurance Regulations Influence Small Business Size?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 231-260, March.
    3. Kanika Kapur & José J. Escarce & M Susan Marquis & Kosali I. Simon, 2008. "Where Do The Sick Go? Health Insurance and Employment in Small and Large Firms," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 644-664, January.
    4. Sharon Tennyson, 2010. "Incentive Effects of Community Rating in Insurance Markets: Evidence from Massachusetts Automobile Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 35(1), pages 19-46, June.
    5. Andersen, Martin, 2015. "Heterogeneity and the effect of mental health parity mandates on the labor market," Journal of Health Economics, Elsevier, vol. 43(C), pages 74-84.
    6. Chu-Shiu Li & Chwen-Chi Liu & Yu-Chen Kuo & Chen-Sheng Yang, 2013. "Health insurance provision and labor contracts for small firms," Small Business Economics, Springer, vol. 40(2), pages 325-334, February.

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