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

Naoki Aizawa and Chao Fu

No 26713, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: I11 J01 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-hea, nep-ias and nep-lab
Note: LS
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