Working Paper: NBER ID: w12430
Authors: Jayanta Bhattacharya; William B. Vogt
Abstract: We construct and test a new model of employer-provided health insurance provision in the presence of adverse selection in the health insurance market. In our model, employers cannot observe the health of their employees, but can decide whether to offer insurance. Employees sort themselves among employers who do and do not offer insurance on the basis of their current health status and the probability distribution over future health status changes. We show that there exists a pooling equilibrium in which both sick and healthy employees are covered as long as the costs of job switching are higher than the persistence of health status. We test and verify some of the key implications of our model using data from the Current Population Survey, linked to information provided by the U.S. Department of Labor about the job-specific human capital requirements of jobs.
Keywords: Health Insurance; Adverse Selection; Labor Market
JEL Codes: I1; J10; J33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| job switching costs > persistence of health status (I12) | adverse selection resolution (D82) |
| adverse selection (D82) | lack of insurance provision among some employers (I13) |
| job characteristics (M54) | health insurance provision (I13) |
| job-specific human capital requirements (J24) | employer-provided health insurance (I13) |
| industry turnover and job stickiness (J63) | health insurance coverage probabilities (G52) |