Identifying the Effects of Health Insurance Mandates on Small Business Employment and Pay

The cost of employee health insurance is steadily increasing, due in part to state mandates that require insurance policies to cover additional medical treatments and services. A prevalent empirical finding is that these mandates have uncertain labor market effects, as most results are statistically insignificant. We determine several reasons for the imprecision in this area of research: small sample bias, heterogeneity in the effects of mandates, and collinearity of mandate legislation. Empirically addressing these factors with population-level data on small business employment, we identify significant employment effects for several mandates and illustrate how pervasively these issues plague identification.