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do not currently offer insurance are likely to be unresponsive to even a large reduction in

premiums.

The level of workers’ earnings is also an important factor in employers’ decisions to offer

insurance. Estimates of the price elasticity of offer among firms with a high percentage of low-

wage workers (more than 75 percent of the firm’s workforce) are greater than those for other

firms (Marquis and Long 2001, Hadley and Reschovsky 2002).

3.

Methodological Issues

For studies that attempt to examine the impact of tax policy, lack of complete tax

information is the most significant challenge. Ideally, one would have person-level information

on both federal and state marginal tax rates, as well as Social Security and Medicare payroll tax

rates for all employees in the firm. However, with firm-level data, the characteristics of the

employees that drive employers’ benefits decisions are typically unobservable—and because

employees’ marginal tax rates vary by family income, it is difficult to determine which tax rate

to assign at the level of the firm. Some studies statistically match limited employee information

to a larger individual-level survey (such as the CPS) to impute an average marginal tax rate by

firm.

Studies that depend on cross-sectional data to analyze firms’ offer decisions usually can

observe premiums only for firms that offer coverage. Researchers must then impute unobserved

premiums

for

firms

that

do

not

offer

coverage.

The

imputation

of

unobserved

premiums

typically relies on the use of instrumental variables that are correlated with premiums but do not

correlate with firm demand.

However, the inability to observe premiums introduces at least two additional problems for

researchers. First, the premiums paid by firms that offer insurance are likely to be systematically

lower than the premiums quoted to firms that do not offer insurance. Reliable estimates of

14

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