LABOR MARKETS AND HEALTH BENEFITS: THE OFFER AND RESTRICTIONS ON IT

Between 2000 and 2004, the percentage of Americans with employer-sponsored health insurance dropped from 63.6 to 60.4 (Gould, 2004). Low-wage workers with minimal skills may be particularly at risk for being uninsured. Eighty-eight percent of employees earning more than $15 per hour had employer-sponsored health insurance in 2003 compared to only 41% of those earning less than $10 per hour (Collins et al., 2004). The plight of the low-skilled workers may be further exacerbated if their employment does not provide other health benefits such as sick leave that would enable them to attend to health problems as they arise. Research hints of such compounding problems, with about 65% of covered employees but only 30% of uncovered workers having paid time off to see a physician or some paid sick leave (Collins et al., 2004). While high rates of uninsurance among low-wage workers might reflect their failure to take a firm's offer of health benefits (e.g., their low wages preclude them from paying cost-sharing premiums), they might also reflect the fact that their firm did not extend an offer. We argue that a failure to receive a health benefit offer may result from market forces. Firms may use health benefits to increase compensation to workers in tight labor markets or with needed skills or to lower compensation when workers or skills are plentiful. The health benefit offer may be of limited use in the labor market for high-wage workers since most already receive health benefits. However, it might be a useful tool in responding to labor market forces affecting workers in low-skilled positions since they frequently do not receive health benefits. Using the Bay Area Longitudinal Surveys (BALS), we empirically show that an excess demand for skills increases the likelihood of health benefits being offered in low-skilled jobs: skills with a high relative demand in the local labor market have an increased probability of offering medical, dental, and sick leave benefits. Restrictions placed on the health benefit offer also appear to respond to the labor market for skills, as skill bottlenecks increase the probability that a firm places no restrictions on offer and an excess supply of skills increases the restrictions. These findings suggest that public policies should place the issues of uninsurance of low-wage workers within the context of their lack of marketable skills in the local labor market. Furthermore, our results suggest that research assessing the correlation between wages, skills, and whether or not a firm offers health insurance might understate the plight of the low-skilled worker since health care access may also be restricted by a failure to receive an array of health benefits and by the restrictions placed on the offer. I. FRAMEWORK Firms compensate workers for their labor in many ways, including wages and health benefits, with each component of compensation varying in its ability to adjust to labor market conditions. While some components may be relatively easy to negotiate at an individual or group level (e.g., wages), others, like medical insurance, represent a quasi-fixed payment because premiums are negotiated for the firm's entire workforce that meets the eligibility criteria. (1) Despite the relatively fixed nature of some health benefits, firms can affect who gets an offer through eligibility restrictions (e.g., requiring a minimum number of hours worked per week or a minimum length of tenure with the firm). By requiring workers to work 40 h a week or to wait an extended period before they are eligible to receive an offer of health benefits, firms can control what type of and how many workers actually receive a health benefit offer. (2) Firms can also influence the rate at which workers take up the offers by manipulating the price to the worker for participation (Cutler and Madrian, 1998). Firms have a financial incentive to offer health benefits, even those with a quasi-fixed nature. …