PETER K. STRIS, Whittier Law School, Stris & Maher LLP
Email: pstris@law.whittier.edu

Because of an annual tax subsidy that well exceeds $100 billion, most private healthcare expenses in the United States today are covered by employer-sponsored insurance. Like other important employee-welfare benefits, employer-sponsored health insurance is regulated by the Employee Retirement Income Security Act of 1974 (ERISA) - a landmark federal statute whose primary objective was the protection of private-sector retirement savings.

A rich scholarly literature has developed which addresses the effects of federal tax and regulatory policy on the structure and performance of our healthcare industry. Within legal academia, however, one issue in particular has engendered much debate: to what extent has ERISA - because of the manner in which its preemption and civil enforcement provisions have been interpreted - created a system in which employees and their beneficiaries receive insufficient protection?

Broadly speaking, commentators divide into two camps. One group believes that the status quo is grossly unjust and sadly ironic. In their view, legislation intended to protect employees and their beneficiaries against fiduciary misdeeds is habitually used as a shield by such fiduciaries against liability for negligence and even deliberate wrongdoing. The other group believes that the status quo is the fair result of a sensible legislative compromise. They argue that the current system adequately protects employees and their beneficiaries while, at the same time, maximizing the overall level and quality of welfare benefits offered by employers.

This paper addresses one of the most hotly contested questions in that debate: what civil remedies should be available in litigation against a welfare plan and its fiduciaries when a litigant has been injured by the wrongful handling of her benefits claim? Its modest goal is to illustrate that the decade-long conflict that has raged over this question is nothing more than an age-old consequentialist battle over liability rules which, for several often misunderstood reasons, is not amenable to simplistic legislative or judicial resolution.

EDWARD A. ZELINSKY, Benjamin N. Cardozo School of Law
Email: ZELINSKY@PRODIGY.NET

An exploration of the most recent decision of the U.S. Court of Appeals for the Ninth Circuit in Golden Gate Restaurant Association v. City and County of San Francisco (Golden Gate III) indicates that ERISA Section 514(a) preempts the San Francisco Health Care Security Ordinance. Two premises guide this exploration of Golden Gate III. First, employers? ongoing payments to health care administrators, such as insurance companies, constitute employee benefit ?plans? for ERISA purposes. Second, employers? contributions are central features of their employee plans.

This first premise indicates that a San Francisco employer which regularly contributes to San Francisco pursuant to that City?s health ordinance thereby creates a ?plan? for ERISA purposes. The ERISA status of this plan purchasing municipally-administered medical services is the same as the ERISA status of an analogous employer-financed plan paying a private administrator for comparable health care: As to all of these plans, ERISA Section 514(a) preempts state and local regulation.

Moreover, it is not persuasive for purposes of ERISA Section 514 to say (as does the Ninth Circuit) that San Francisco, by its health care ordinance, regulates employers? health care contributions, but not employers? health care plans. Contributions are central features of employers? health care plans for their employees. By regulating employers? contributions, San Francisco regulates employers? plans.

JAMES MARTON, Georgia State University, Andrew Young School, Department of Economics
Email: marton@gsu.edu
STEPHEN WOODBURY, Michigan State University, W.E. Upjohn Institute for Employment Research, National Bureau of Economic Research (NBER)
Email: WOODBUR2@PILOT.MSU.EDU

We estimate the effect of employer offers of retiree health benefits (RHBs) on the timing of retirement using a sample of men observed over a period of up to 12 years in the Health and Retirement Study (HRS). Our main concern is that such estimates may be contaminated by unobserved heterogeneity - workers with a taste for early retirement sort into jobs offering RHBs. We attempt to address this concern by using a fixed-effects estimator, which yields substantially smaller estimates of the effect of RHB offers than estimators that do not attempt to control for unobservables. The findings suggest that an RHB offer increased the probability of retirement by 14 percent on average for men born between 1931 and 1941.

AMY FINKELSTEIN, Massachusetts Institute of Technology (MIT) - Department of Economics, National Bureau of Economic Research (NBER)
Email: afink@mit.edu

This article reviews the growing literature on the market for private long-term care insurance, a market notable for its small size despite the fact that long-term care expenses are potentially large and highly uncertain. After summarizing long-term care utilization and insurance coverage in the United States, the article reviews research on the supply of and the demand for private long-term care insurance. It concludes that demand-side factors impose important limits on the size of the private market and that we currently have a limited understanding of how public policies could be designed to encourage the growth of this market.

JOANNA LAHEY, Texas A&M University - George Bush School of Government and Public Service

Health insurance costs are one reason that employers may be reluctant to hire older workers. Higher health insurance costs are often correlated with other factors of employment, such as firm size, which can also be correlated with employment outcomes. This paper uses state health insurance mandates, which are correlated with higher health care costs, as a source of exogenous variation in an instrumental variables (IV) strategy to identify the causal effects of health care costs on employment of older workers. Using this instrument, I find that increasing health care costs significantly lower men?s employment. Thus it appears that rising health insurance costs for older workers are partly responsible for decreasing employment of older potential workers. Although people with higher health care costs are less likely to be employed, older workers do not seem to be singled out; employment and labor force rates for older potential workers are in fact less affected by higher health care costs than are employment outcomes for younger.

DAVID P. BERNSTEIN, affiliation not provided to SSRN
Email: spstat@yahoo.com

Objective: To assess the impact of attitudes towards risk and preference for insurance on the demand for insurance by young adults.

Data Sources & Study Setting: Our analysis is based on survey data from the 2005 Medical Expenditures Panel (MEPS). All respondents included in the study are between the age of 26 and 35 inclusive.

Study Design: Simple univariate statistics on insurance coverage, economic status, socio-economic variables, and attitudes towards risk and insurance are compared for the 26-to-30 year-old age group to the 31-to-35 year-old age group. Logistical regression models are estimated to determine the impact of attitudes towards risk on the likelihood a person lacks insurance for the entire year, the likely of not having insurance for at least one month in the year, or the likelihood of not having an offer of employment sponsored insurance (ESI). Separate logistic health insurance coverage models are estimated for young adults with an ESI offer and young adults without an ESI offer.

Principal Findings: Older young adults are more likely to have health coverage than younger young adults because they have higher family income, are more likely to be married, and are more likely to be employed at a position offering ESI. Attitudes toward risk and the value of insurance are not closely associated with the insurance coverage and ESI offer variables, estimated over the entire sample. Attitudes toward risk have a larger impact on health insurance coverage for young adults who do not have an ESI offer than for young adults with an ESI offer. Marriage is closely associated with young adults obtaining health insurance coverage especially in the ESI system.

Conclusions: The results presented here indicate young adults lack insurance coverage because of basic economic and socio-economic variables rather than a higher acceptance of risk. An expansion of health coverage for young adults requires the adoption of more affordable options. Efforts to educate or persuade young adults to purchase existing health care options are not likely to prove to be effective.

DARON ACEMOGLU, Massachusetts Institute of Technology (MIT) - Department of Economics, Centre for Economic Policy Research (CEPR), National Bureau of Economic Research (NBER)
Email: daron@mit.edu
AMY FINKELSTEIN, Massachusetts Institute of Technology (MIT) - Department of Economics, National Bureau of Economic Research (NBER)
Email: afink@mit.edu
MATT NOTOWIDIGDO, Massachusetts Institute of Technology (MIT) - Department of Economics
Email: noto@mit.edu

Health expenditures as a share of GDP have more than tripled over the last half century. A common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States. This strategy enables us to capture both the partial equilibrium and the local general equilibrium effects of an increase in income on health expenditures. Our central estimate is an income elasticity of 0.7, with an elasticity of 1.1 as the upper end of the 95 percent confidence interval. Point estimates from alternative specifications fall on both sides of our central estimate, but are almost always less than 1. We also present evidence suggesting that there are unlikely to be substantial national or global general equilibrium effects of rising income on health spending, for example through induced innovation. Our overall reading of the evidence is that rising income is unlikely to be a major driver of the rising health share of GDP.

TOM BUCHMUELLER, University of Michigan at Ann Arbor - Stephen M. Ross School of Business
Email: tbuch@umich.edu
JOHN E. DINARDO, University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy, National Bureau of Economic Research (NBER)
Email: JDINARDO@UMICH.EDU
ROBERT G. VALLETTA, Federal Reserve Bank of San Francisco, Institute for the Study of Labor (IZA)
Email: rob.valletta@sf.frb.org

Over the past few decades, policy makers have considered employer mandates as a strategy for stemming the tide of declining health insurance coverage. In this paper we examine the long term effects of the only employer health insurance mandate that has ever been enforced in the United States, Hawaii's Prepaid Health Care Act, using a standard supply-demand framework and Current Population Survey data covering the years 1979 to 2005. During this period, the coverage gap between Hawaii and other states increased, as did real health insurance costs, implying a rising burden of the mandate on Hawaii's employers. We use a variant of the traditional permutation (placebo) test across all states to examine the magnitude and statistical properties of these growing coverage differences and their impacts on labor market outcomes, conditional on an extensive set of covariates. As expected, the coverage gap is larger for workers who tend to have low rates of coverage in the voluntary market (primarily those with lower skills). We also find that relative wages fell in Hawaii over time, but the estimates are statistically insignificant. By contrast, a parallel analysis of workers employed fewer than 20 hours per week indicates that the law significantly increased employers' reliance on such workers in order to reduce the burden of the mandate. We find no evidence suggesting that the law reduced employment probabilities.