Working Paper: NBER ID: w17933
Authors: Jonathan T. Kolstad; Amanda E. Kowalski
Abstract: We model the labor market impact of the three key provisions of the recent Massachusetts and national "mandate-based" health reforms: individual and employer mandates and expansions in publicly-subsidized coverage. Using our model, we characterize the compensating differential for employer-sponsored health insurance (ESHI) -- the causal change in wages associated with gaining ESHI. We also characterize the welfare impact of the labor market distortion induced by health reform. We show that the welfare impact depends on a small number of "sufficient statistics" that can be recovered from labor market outcomes. Relying on the reform implemented in Massachusetts in 2006, we estimate the empirical analog of our model. We find that jobs with ESHI pay wages that are lower by an average of $6,058 annually, indicating that the compensating differential for ESHI is only slightly smaller in magnitude than the average cost of ESHI to employers. Because the newly-insured in Massachusetts valued ESHI, they were willing to accept lower wages, and the deadweight loss of mandate-based health reform was less than 5% of what it would have been if the government had instead provided health insurance by levying a tax on wages.
Keywords: health reform; labor market; employer-sponsored health insurance; welfare analysis
JEL Codes: I11; I28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| deadweight loss (H21) | employer-sponsored health insurance (ESHI) (I13) |
| employer-sponsored health insurance (ESHI) (I13) | labor market outcomes (J48) |
| Massachusetts reform (I19) | employer-sponsored health insurance (ESHI) (I13) |
| newly insured individuals (I13) | employer-sponsored health insurance (ESHI) (I13) |
| employer-sponsored health insurance (ESHI) (I13) | wages (J31) |