State Insurance Regulation and Employers' Decisions to Self-Insure
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With their tremendous growth over the last decade, self-insured health plans now enroll the majority of people who have employer-sponsored health insurance. This article devel- ops a model of an employer's choice of funding method for workers' health insurance benefits that predicts that self-insurance is more likely as the burden of state insurance regulation increases. We then test the hypothesis that employers' decisions to adopt self-insurance during the 1980s were motivated by desires to avoid state premium taxes and the increasing number of state-mandated benefits. Using data on 274 firms observed between 1981 and 1984/1985 and 219 firms observed between 1984 and 1987, we estimate two logit models for an employer's decision to convert to self-insurance (one for each data set). We find evidence that state insurance regulation spurred the adoption of self-insurance in the early 1980s, but by the mid-1980s firms were converting for reasons other than the avoidance of regulation.