Utilization of Health Insurance and Worker's Compensation Cost-Shifting

Health insurance contracts are often structured with different forms of cost sharing in order to provide consumption smoothing across different health outcomes while limiting moral hazard. These components of health insurance may influence an individual’s behavior in multiple ways. The research on moral hazard has largely focused on the responsiveness of consumers spending on healthcare to the cost of care. Alternatively, most workers with employer-sponsored health insurance (EHI) also have access to workers’ compensation (WC) for medical coverage of injuries and illnesses which may be related to their work. WC medical coverage has no copayment or deductible associated with coverage, but employees need to prove their injury is work-related and they are often limited in their choice of medical care provider. The costs for the employee associated with using EHI differs across plans in their cost-sharing mechanisms and over the course of a year if a deductible is present. Differences in plans and time of year provide variation in the end-of-year and spot price of medical care and can identify whether or not workers vary their utilization of WC dependent upon the cost of their outside option through EHI.

Using MarketScan data containing WC and health insurance claims, the analysis first confirms employee sensitivity to future prices of medical care using a difference-in-difference technique. The differences in plan deductibles and employee enrollment months allows for control of seasonal differences in medical utilization while focusing on variation in the end-of-year price of medical care that comes with differing enrollment months similar to analysis done in Aron-Dine, Einav, Finkelstein, and Cullen (2015). This analysis is then replicating using the WC claims information for the same set of employees. The empirical work finds evidence of cost shifting to WC as employees are less likely to use EHI and more likely to use WC if they enroll in their EHI later in the year and face a higher end-of-year price of medical care using the EHI.

Measuring the extent of WC cost-shifting is important for a number of reasons. In addition to providing benefits to employees injured on the job, WC also serves as an incentive for employers who are experience-rated to invest in the safety of their workplaces. Variation in WC claiming due to changing prices of EHI medical care is likely to also impact workplace injuries reported to employers, and therefore measuring the extent of WC cost shifting can better inform occupational safety and health surveillance activities.