Interaction of the Labor Market and the Health Insurance System: Employer-Sponsored, Individual, and Public Insurance

Naoki Aizawa and Chao Fu

Journal of Labor Economics, 2025, vol. 43, issue 4, 1207 - 1249

Abstract: We develop and estimate an equilibrium model with heterogeneous local markets, households, and firms, highlighting the interrelationship between various components of the health insurance system—employer-sponsored health insurance (ESHI), individual health insurance (HIX), and Medicaid—and their relationship with the labor market. We estimate the model exploiting variation across states and before and after the Affordable Care Act. We consider counterfactual policies that cross subsidize between ESHI and HIX, including pure ESHI-HIX risk pooling as a special case. We find that such policies would increase household welfare and output and decrease government expenditure and would be more effective with Medicaid expansion.

Date: 2025
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