Employer‐Sponsored Health Insurance and the Gender Wage Gap: Evidence from the Employer Mandate

Abstract

In the United States, female workers tend to have higher medical expenditures than male workers. Due to experience rated premiums, the cost of providing employer-sponsored health insurance (ESI) therefore differs by gender. This article examines if that cost difference contributes to the gender wage gap. Identification comes from the exogenous variation provided by the Affordable Care Act's employer mandate. Estimation uses a difference-in-difference framework with data from the Medical Expenditure Panel Survey. Findings suggest the portion of the gender wage gap attributable to ESI is smaller than existing estimates in the literature and is statistically no different to zero once individual medical expenses are included as a control. In addition, the article's empirical approach highlights that existing work on the role of ESI in the gender wage gap does not separately identify the effect of ESI from plausible alternatives.JEL Classification: I13, J16, J23, J31, J32, J71 The full cost of ESI is pushed onto firms either via experience rating (premiums reflect the actual expenditures of employees) or self-insurance. 2 The Health Insurance Portability and Accountability Act (HIPAA) forbids discriminatory distinctions in benefit generosity and employee contributions. See https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/offeringdifferentbenefitsfor differentemployees.aspx. Given these medical expenditure differences, employers who offer ESI should prefer (at the margin) to hire males unless female wages are free to adjust to account for the cost of ESI. 3 However, Daneshvary and Clauretie (2007), using spousal job characteristics as an instrumental variable, find little evidence to suggest that females receive lower wages than males due to ESI. Cowan and Schwab (2016) reach the opposite conclusion. They use a difference-in-difference empirical strategy that compares wage gaps between males and females at firms that do and do not offer ESI. Their strategy is borrowed from Bhattacharya and Bundorf (2009), who examine how ESI affects obese workers' wages. Cowan and Schwab's findings suggest that hourly wages are $0.50 to $1.50 (in 2002 dollars) larger for males when ESI is offered. Even though firms that do and do not offer ESI are surely different, these estimates have a causal interpretation if the identifying assumptionthat unobserved effects on wages are the same for males and females-is valid.This article first establishes that Cowan and Schwab's (and, in turn, Bhattacharya and Bundorf's) identifying assumption does not hold. To do so, the article subjects their identification strategy to a series of falsification tests using wage and medical expenditure differences among other groups. This exercise highlights that there are differences between firms that do and do not offer ESI that will tend to increase wage gaps between workers-for reasons that are unrelated to ESI. These identification issues ensure that the effect of ESI on the gender wage gap remains an open question.To resolve that open ...