Health Insurance Costs and Employment Outcomes by Age

Abstract

Health insurance costs are one reason that employers may be reluctant to hire older workers. Higher health insurance costs are often correlated with other factors of employment, such as firm size, which can also be correlated with employment outcomes. This paper uses state health insurance mandates, which are correlated with higher health care costs, as a source of exogenous variation in an instrumental variables (IV) strategy to identify the causal effects of health care costs on employment of older workers. Using this instrument, I find that increasing health care costs significantly lower men’s employment. Thus it appears that rising health insurance costs for older workers are partly responsible for decreasing employment of older potential workers. Although people with higher health care costs are less likely to be employed, older workers do not seem to be singled out; employment and labor force rates for older potential workers are in fact less affected by higher health care costs than are employment outcomes for younger.