258 S. Glied, M. Stabile Journal of Health Economics 20 2001 239–260
Table 8 MSP savings decomposition, 1985
Payment and coverage compliance US in millions
Payment compliance only US in millions
Expected savings
a
1800 1200
Loss from changes in hours 38
38 Loss from changes in employment
b
61 61
Loss from ignoring law 1242
792 Net savings
c
459 309
a
These savings represent the authors’ estimates of what MSP should have saved.
b
Change in employment are adjusted to 1985 from our 1988 estimates of changes in employment by size of firm.
c
These savings do not include spousal or accident insurance provisions. HCFA’s estimate of actual MSP savings for 1985, including these provisions was US 450 million.
7. Conclusions
The MSP mandate did not actually accomplish much of what it set out to do. Payer compliance with the mandate was only about one-third and was concentrated entirely among
the largest claims. Coverage compliance was under 25, even assuming the distribution of hours worked as constant. We also observe some evidence of MSP avoidance, particularly
in the largest firms, further reducing the impact of the legislation. By contrast, we find no observable effect of the mandate on wage and employment outcomes.
We decompose the lack of savings from lack of compliance and tax avoidance and sum- marize these results in Table 8. In the first column, we report the results of a decomposition
that includes both payment and coverage compliance employers both acted as primary payers when they were obligated to, and provided coverage for workers age 65 and over
at similar rates to those under age 65. The second column reports the decomposition of savings assuming payment compliance only. Our results suggest net savings from MSP
between US 309 and US 459 million in 1985, consistent with HCFA’s reported savings of US 450 million.
Why is compliance so low? The diffuse nature of the US health insurance system means that it is almost impossible to use standard administrative records to identify people with
private insurance coverage. HCFA had to rely on insurance intermediaries, providers, em- ployers, and older workers to identify those with employer coverage. These groups, however,
had little incentive to assist in complying with the mandate.
This difference in compliance incentives helps explain the sharp contrast between these results and those of Gruber’s study of the incidence of mandatory maternity benefits Gru-
ber, 1994. That study found that a female-worker-specific insurance mandate, equivalent to a tax of 2–4, led to a decline in the wages of affected women of 4, but had little effect
on labor supply.
26
In the case of the maternity benefit, pregnant women, and their health care providers had considerable incentive to require that their employers comply with the
mandate.
26
For example, the cost of maternity benefits for a married female ages 30–39 is equal to 3.5 of wages.
S. Glied, M. Stabile Journal of Health Economics 20 2001 239–260 259
The cost of health insurance coverage is high, so anti-crowd-out provisions continue to be a component of policy proposals. In thinking about the implications of these findings for
other anti-crowd-out proposals, it is important to recognize that the poor compliance results of the MSP occurred in an administrative environment that was unusually favorable to com-
pliance enforcement. Seniors with employer-sponsored coverage reported both medicare and their employer-sponsored coverage to providers, so both sources of coverage could be
tracked and compared. Small numbers of carriers acted as intermediaries, and many of these carriers also administered the employer-sponsored supplemental insurance coverage itself.
Only a small fraction of eligible seniors worked, so that the number of cases was limited. Finally, medical costs for seniors are very high, so that the savings from compliance pro-
vided substantial incentives for enforcement. Enforcing anti-crowd-out provisions in the larger, more heterogeneous, and less costly population under age 65, who use a much more
fragmented health care system, is likely to be even more difficult.
Acknowledgements
An Investigator Award from the Robert Wood Johnson Foundation supported this re- search. The authors are grateful for comments from participants in seminars at MIT, CUNY,
and Columbia University. The authors also thank the anonymous referees, David Cutler, Jim Mays and David McKusick for helpful comments.
Appendix A
Probit analysis of the determinants of employer-sponsored health insurance coverage for the working population ages 55–64
N = 17,628 Employer-sponsored health insurance
a
Education 0.020
∗∗
0.006 Race: black
0.039 0.073 Race: other non-white
− 0.137 0.127
Male 0.315
∗∗
0.040 Hours worked
0.030
∗∗
0.001 Constant
− 0.452
∗
0.298
a
Source: 1985 CPS. Standard errors in parentheses. State and industry dummy vari- ables included. Sample includes workers ages 55–64.
∗
Denotes significance at the 10 level.
∗∗
Denotes significance at the 5 level.
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