Effects of Disability-Based Underwriting Prohibitions

In the United States, about two thirds of the non-elderly population obtains health insurance coverage through an employer, either of one’s own or a family member’s. State governments have enacted regulations that prohibit the use of a variety of underwriting criteria, ostensibly to make insurance more affordable to those who would have otherwise been denied coverage or charged higher rates. Browne and Frees (2004) examine how underwriting restrictions affect the insurance market. This study tests whether the regulations that restrict the use of disability status as criterion for the purposes of underwriting on the small group insurance market have different impacts on the employment of the disabled and the able-bodied people. Research generally supports the theory that employment based health insurance impacts the labor market because the coverage provided by employers constitutes a portion of employment costs. The literature suggests group insurance regulations tend to affect the labor market through eligibility for group coverage and premium rates. The underwriting restrictions may have different effects on the premium rates of different groups, and hence impose different effects on the labor market outcomes of these groups. Using the Current Population Survey and state statutes this paper examines whether the underwriting restrictions are associated with changes in (1) employment status, (2) firm size, and (3) wages of two separate groups of people, namely, the disabled, and the able-bodied. The findings suggest, in states and years when disability is prohibited as an underwriting criterion, able-bodied workers are more likely to be hired by small firms, and they are paid more than those in states without such restrictions.