Decreasing Opportunities for Low-Wage Workers: The Role of the Nondiscrimination Law for Employer-Provided Health Insurance

As of 1978, the favorable tax treatment of fringe benefits, including health insurance, has been regulated via a nondiscrimination clause such that low-wage, full-time workers must be offered health insurance (and other benefits) that are offered to higher-wage workers by the firm. Part-time workers may be excluded from coverage, however, creating incentives for firms to hire some types of workers part time to deny them coverage. We hypothesize that firms will hire fewer workers whose relative costs have increased, that is, low-wage workers. These workers will be less likely to work for firms that offer coverage, and those that do will be more likely to work part time without being eligible for the firm’s health insurance benefits. We use the 1988 and 1993 Employee Benefits Supplements to the Current Population Surveys and an employer premium imputation to examine these hypotheses. Both the descriptive and multivariate analysis are consistent with our hypotheses. We predict the probability of working for a firm that offers health insurance to decrease as premiums increase for both high- and low-wage workers. An increase in the premium is also associated with a decrease in the probability of part-time work, but an even greater decrease in the joint probability of part-time work with eligibility for health insurance.