Working Paper: NBER ID: w26713
Authors: Naoki Aizawa; Chao Fu
Abstract: The U.S. health insurance system for working-age households is characterized not only by its heavy dependence on the labor market but also by the segregation of risk pools across its three components: employer-sponsored health insurance (ESHI), individual health insurance exchange (HIX), and Medicaid. To assess the potential efficiency loss associated with this risk pool segregation, we develop and estimate an equilibrium model of labor and health insurance markets, with rich heterogeneity across local markets, households, and firms. We estimate the model exploiting variations across states and policy environments before and after the Affordable Care Act. We use the estimated model to implement counterfactual policies that cross-subsidize between ESHI and HIX, which include pure risk pooling between the two markets as a special case. We find that such policies would benefit most households, improve average household welfare, and decrease government expenditure. Furthermore, the welfare gains are larger if the cross subsidization is interacted with Medicaid expansion.
Keywords: health insurance; labor market; risk pools; Affordable Care Act; welfare analysis
JEL Codes: I11; J01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employersponsored health insurance (ESHI) (I13) | Household Welfare (I38) |
| Individual health insurance (HIX) (G52) | Household Welfare (I38) |
| Cross-subsidization between ESHI and HIX (H23) | Household Welfare (I38) |
| Cross-subsidization between ESHI and HIX + Medicaid expansion (I18) | Household Welfare (I38) |
| Medicaid expansion (I18) | HIX Premiums (G22) |
| Medicaid expansion (I18) | ESHI Premiums (G52) |
| Policy changes associated with the ACA (G52) | Household Welfare (I38) |
| Policy changes associated with the ACA (G52) | Government Expenditure (H59) |
| Decrease in uninsured rate (G52) | Government Expenditure (H59) |
| Adjustments in equilibrium wages (J39) | Household Welfare (I38) |