Jon R. Gabel

State mandated benefits and the small firm's decision to offer insurance

In the last decade, the number of Americans without health insurance has grown, partly due to an erosion in employer-based coverage among workers. This paper examines the extent to which state-mandated benefit requirements and other state insurance regulations discourage small firms in the private sector from providing health benefits. Using data on 1320 firms observed in 1985 and 492 firms observed in 1988, we estimate two models of small firms decisions to offer health insurance (one for each data set), and then use them to assess the effects that mandates had on purchasing decisions in both years. We estimate that 19 percent of noncoverage among sample businesses in 1985 and 43 percent of noncoverage in the 1988 sample was attributable to state-mandated benefits. State continuation-of-coverage requirements were particularly burdensome for firms. With continued growth in the number of state mandated benefit requirements, we should expect a steady rise in the small firms propensity to forgo insurance coverage.