Measuring the Impact of Medical Cannabis Law Adoption on Employer-Sponsored Health Insurance Costs: A Difference-in-Difference Analysis, 2003–2022

Abstract

Introduction: Recent studies suggest that medical cannabis laws may contribute to a relative reduction in health insurance costs within the individual health insurance markets at the state level. We investigated the effects of adopting a medical cannabis law on the cost of employer-sponsored health insurance in the United States. Methods: We analyzed state-level data from the Medical Expenditure Panel Survey–Insurance Component (MEPS-IC) Private Sector spanning from 2003 to 2022. The outcomes included log-transformed average total premium costs per employee for single, employee-plus-one, and family coverage plans. We utilized the Sun and Abraham (J Econometr 225(2):175–199, 2021) difference-in-difference (DiD) method, looking at the overall DiD and event-study DiD. Models were adjusted for various state-level demographics and dichotomous policy variables, including whether a state later adopted recreational cannabis, as well as time and unit fixed effects and population weights. Results: For states that adopted a medical cannabis law, there was a significant decrease in the log average total premium per employee for single (−0.034, standard error [SE] 0.009 (−$238)) and employee-plus-one (−0.025, SE 0.009 (−$348)) coverage plans per year considering the first 10 years of policy change compared with states without such laws. Looking at the last 5 years of policy change, we saw increases in effect size and statistical significance. In-time placebo testing suggested model robustness. Under a hypothetical scenario where all 50 states adopted medical cannabis in 2022, we estimated that employers and employees could collectively save billions on healthcare coverage, potentially reducing healthcare expenditure's contribution to GDP by 0.65% in 2022. Conclusion: Adoption of a medical cannabis law may contribute to decreases in healthcare costs. This phenomenon is likely a secondary effect and suggests positive externalities outside of medical cannabis patients.