The Effects of Minimum Wage Increases on Health Insurance

• In Event: A New Perspective on Minimum Wage Effects

Abstract

This study investigates how minimum wage increases affect health insurance coverage, focusing on whether higher wages enhance their economic condition and improved insurance availability, and switching from Medicaid to private insurance. Using data from the America Community Survey (ACS), we analyze the causal relationship between minimum wage increases and health insurance coverage. The analysis centers on working-age individuals (18–62 years old) from 2010 to 2019, during which time there was substantial variation in minimum wages.

To investigate the causal effect of the minimum wage increases, we employ a difference-in-differences (DID) approach. This method exploits state-level variations in minimum wage policies and incorporates fixed effects to account for time-invariant state-specific characteristics and nationwide time trends. Our primary treatment variable is the minimum wage applied within each state. We further control for state-level characteristics, including gross state product, unemployment rates, and key policy variables such as Medicaid expansion and EITC rates, ensuring the isolation of the minimum wage's impact. We further refine our analysis by focusing on individuals employed in very low, low, and modestly compensated occupations—those most likely to be directly impacted by changes in the minimum wage. Additionally, we explore heterogeneous treatment effects across racial and ethnic groups through subgroup analyses. To address the concerns about two-way fixed effects (TWFE) DID in the staggered setting, we perform robustness checks using recently developed estimators designed for heterogeneous treatment effects, which align well with our binary treatment TWFE specification.

The ACS dataset offers detailed information on health insurance, including employer-sponsored insurance (ESI) and public insurance for relatively large samples, even across an ethnic and racial working-age groups, allowing more reliable ethnic and racial analysis. Our sample consists of 11,263,254 White, 1,559,225 Black, 2,248,625 Hispanic, and 863,338 Asian of working-age individuals. To ensure the robustness of our findings, we supplement the analysis with data from the Medical Expenditure Panel Survey (MEPS), which provides monthly health insurance enrollment information. This allows us to estimate the effects of minimum wage changes on health insurance switching behaviors.

Our results indicate significant effects of minimum wage increases on health insurance coverage. On average, a $1 increase in the minimum wage led to declines in health insurance coverage among Black individuals, with no statistically significant effects observed for White, Hispanic, or Asian groups. These reductions are primarily driven by shifts in employer-sponsored insurance and Medicaid coverage. For low paying occupation Black groups, the reductions in ESI likely reflect employers’ efforts to offset higher labor costs following minimum wage increases. Conversely, Medicaid coverage was declined after the minimum wage increase for the high paying occupation Black groups. 

These results suggest that although higher minimum wages may enhance earnings for those who remain employed, they may also lead to unintended reductions in non-wage benefits, such as health insurance. The heterogenous effects across racial and occupational groups underscore the complex and uneven consequences of wage policy. This study emphasizes the complex interplay between wage policies and health insurance, offering important insights for addressing health disparities and economic inequality.

Author

• Hyunji Ahn, Rutgers University - New Brunswick
  Presenting Author