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What is the Rationale for an Insurance Coverage Mandate? Evidence from Workers’ Compensation Insurance

Author

Listed:
  • Marika Cabral
  • Can Cui
  • Michael Dworsky

Abstract

There is ongoing policy debate about whether government insurance coverage mandates are necessary to effectively address market failures in private insurance markets. This paper analyzes the demand for insurance in the absence of a coverage mandate and the potential market failure rationale for coverage mandates in the context of workers' compensation insurance. Workers' compensation is a state-regulated insurance program that provides employees with income and medical benefits in the event of work-related injuries or illnesses. Nearly all states have mandated workers' compensation insurance coverage; the sole exception is Texas. Using administrative data from the unique voluntary Texas workers' compensation insurance system, we estimate the demand for workers' compensation insurance leveraging idiosyncratic regulatory updates to relative premiums across industry-occupation classifications. The difference-in-differences estimates indicate that the demand for workers' compensation coverage is price-sensitive, with a 10% increase in premiums leading to approximately a 3% decline in coverage. Drawing upon these estimates and additional data on claim costs, we analyze the potential rationale for government intervention to increase coverage through subsidies or a mandate. This analysis suggests that classic market failure justifications for government intervention in insurance markets—such as adverse selection, market power, and externalities—may not be compelling justifications for a mandate in this setting.

Suggested Citation

  • Marika Cabral & Can Cui & Michael Dworsky, 2019. "What is the Rationale for an Insurance Coverage Mandate? Evidence from Workers’ Compensation Insurance," NBER Working Papers 26103, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26103
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    References listed on IDEAS

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    1. Meyer, Bruce D & Viscusi, W Kip & Durbin, David L, 1995. "Workers' Compensation and Injury Duration: Evidence from a Natural Experiment," American Economic Review, American Economic Association, vol. 85(3), pages 322-340, June.
    2. Liran Einav & Amy Finkelstein & Paul Schrimpf, 2010. "Optimal Mandates and the Welfare Cost of Asymmetric Information: Evidence From the U.K. Annuity Market," Econometrica, Econometric Society, vol. 78(3), pages 1031-1092, May.
    3. Kolstad, Jonathan T. & Kowalski, Amanda E., 2016. "Mandate-based health reform and the labor market: Evidence from the Massachusetts reform," Journal of Health Economics, Elsevier, vol. 47(C), pages 81-106.
    4. Martin B. Hackmann & Jonathan T. Kolstad & Amanda E. Kowalski, 2015. "Adverse Selection and an Individual Mandate: When Theory Meets Practice," American Economic Review, American Economic Association, vol. 105(3), pages 1030-1066, March.
    5. Erin Todd Bronchetti & Melissa McInerney, 2017. "Does Increased Access to Health Insurance Impact Claims for Workers' Compensation? Evidence from Massachusetts Health Care Reform," Upjohn Working Papers and Journal Articles 17-277, W.E. Upjohn Institute for Employment Research.
    6. MELISSA McINERNEY & KOSALI SIMON, 2012. "The Effect of State Workers’ Compensation Program Changes on the Use of Federal Social Security Disability Insurance," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(1), pages 57-88, January.
    7. Frank Neuhauser & Steven Raphael, 2004. "The Effect of an Increase in Worker's Compensation Benefits on the Duration and Frequency of Benefit Receipt," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 288-302, February.
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • I1 - Health, Education, and Welfare - - Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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