Working Paper

Abstract

This paper provides new empirical evidence on the impacts of state and federal mental health parity laws on related labor market outcomes, particularly working time. Implemented in the last two decades, these policies aim to eliminate differences in mental and physical health benefits among group health plans. The mandated benefits for mental health drive up the costs of providing health insurance substantially. In response, employers may avoid hiring more full-time workers, whose compensation includes health insurance, by increasing working time per worker and reliance on part-time employment. Employees may also have an incentive to increase their labor supply to qualify for the benefits. Using individual-level data from the Current Population Survey and exploiting policy variation by state and year, the author finds state parity laws increase average weeks worked by 1.4 percent. Since self-insured firms are exempt from state regulations, parity is estimated to have nearly twice as large an effect on small firms as it does on large firms. Moreover, the author studies two federal parity laws and find the more comprehensive one is associated with 1.7 percent more weeks worked. Overall, there is no substantial evidence that parity laws significantly affect hours worked and prevalence of coverage.