IDEAS home Printed from https://ideas.repec.org/a/kap/iaecre/v19y2013i2p107-12910.1007-s11294-012-9385-9.html
   My bibliography  Save this article

The Macroeconomic Consequences of Financing Health Insurance

Author

Listed:
  • Stephen DeLoach
  • Jennifer Platania

Abstract

Employer-financed health insurance systems like those used in the United States distort firms’ labor demand and adversely affect the economy. Since such costs vary with employment rather than hours worked, firms have an incentive to increase output by increasing worker hours rather than employment. Given that the returns to employment exceed the returns to hours worked, this results in lower levels of employment and output. In this paper, we construct a heterogeneous agent general equilibrium model where individuals differ with respect to their productivity and employment opportunities. Calibrating the model to the U.S. economy, we generate steady state results for several alternative models for financing health insurance: one in which health insurance is financed primarily through employer contributions that vary with employment, a second where insurance is funded through a non-distortionary, lump-sum tax, and a third where insurance is funded by a payroll tax. We measure the effects of each of the alternatives on output, employment, hours worked, and wages. Copyright International Atlantic Economic Society 2013

Suggested Citation

  • Stephen DeLoach & Jennifer Platania, 2013. "The Macroeconomic Consequences of Financing Health Insurance," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(2), pages 107-129, May.
    • Handle: RePEc:kap:iaecre:v:19:y:2013:i:2:p:107-129:10.1007/s11294-012-9385-9
    DOI: 10.1007/s11294-012-9385-9
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11294-012-9385-9
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11294-012-9385-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gruber, Jonathan & Madrian, Brigitte C., 1997. "Employment separation and health insurance coverage," Journal of Public Economics, Elsevier, vol. 66(3), pages 349-382, December.
    2. David M. Blau & Donna B. Gilleskie, 2001. "Retiree Health Insurance and the Labor Force Behavior of Older Men in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 64-80, February.
    3. Robert S. Smith & Ronald G. Ehrenberg, 1983. "Estimating Wage-Fringe Trade-Offs: Some Data Problems," NBER Chapters, in: The Measurement of Labor Cost, pages 347-370, National Bureau of Economic Research, Inc.
    4. repec:eee:labchp:v:1:y:1986:i:c:p:473-522 is not listed on IDEAS
    5. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    6. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    7. Currie, Janet & Madrian, Brigitte C., 1999. "Health, health insurance and the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 50, pages 3309-3416, Elsevier.
    8. Steven P. Cassou & Kevin J. Lansing, 2004. "Growth Effects of Shifting from a Graduated-rate Tax System to a Flat Tax," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 194-213, April.
    9. Craig A. Olson, 1998. "A comparison of parametric and semiparametric estimates of the effect of spousal health insurance coverage on weekly hours worked by wives," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 543-565.
    10. FitzRoy, Felix R & Hart, Robert A, 1985. "Hours, Layoffs and Unemployment Insurance Funding: Theory and Practice in an International Perspective," Economic Journal, Royal Economic Society, vol. 95(379), pages 700-713, September.
    11. Arleen Leibowitz, 1983. "Fringe Benefits in Employee Compensation," NBER Chapters, in: The Measurement of Labor Cost, pages 371-394, National Bureau of Economic Research, Inc.
    12. Jeske, Karsten & Kitao, Sagiri, 2009. "U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 210-221, March.
    13. Brigitte C. Madrian, 1994. "Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 27-54.
    14. Hamermesh Daniel S. & Slemrod Joel B, 2008. "The Economics of Workaholism: We Should Not Have Worked on This Paper," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-30, January.
    15. Aaron S. Yelowitz, 1995. "The Medicaid Notch, Labor Supply, and Welfare Participation: Evidence from Eligibility Expansions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 909-939.
    16. Madrian, Brigitte & Cutler, David, 1998. "Labor Market Responses to Rising Health Insurance Costs," Scholarly Articles 2643643, Harvard University Department of Economics.
    17. Katherine Baicker & Amitabh Chandra, 2005. "The Consequences of the Growth of Health Insurance Premiums," American Economic Review, American Economic Association, vol. 95(2), pages 214-218, May.
    18. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-641, June.
    19. Terry J. Fitzgerald, 1996. "Reducing working hours," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 13-22.
    20. David M. Cutler & Brigitte C. Madrian, 1998. "Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 509-530, Autumn.
    21. Thomas C. Buchmueller & Robert G. Valletta, 1999. "The Effect of Health Insurance on Married Female Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 34(1), pages 42-70.
    22. Alessandra Del Boca & Paola Rota, 1998. "How Much Does Hiring and Firing Cost? Survey Evidence from a Sample of Italian Firms," LABOUR, CEIS, vol. 12(3), pages 427-449, September.
    23. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538-538.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Grace Weishi Gu, 2018. "Employment and the Cyclical Cost of Worker Benefits," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 96-120, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brigitte C. Madrian, 2005. "The U.S. health care system and labor markets," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 50(Jun), pages 137-163.
    2. Jonathan Gruber, 1998. "Health Insurance and the Labor Market," NBER Working Papers 6762, National Bureau of Economic Research, Inc.
    3. repec:eee:labchp:v:3:y:1999:i:pc:p:3309-3416 is not listed on IDEAS
    4. Grace Weishi Gu, 2018. "Employment and the Cyclical Cost of Worker Benefits," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 96-120, April.
    5. Maclean, J. Catherine & Webber, Douglas A., 2019. "Government Regulation and Lifecycle Wages: Evidence from Continuing Coverage Mandates," IZA Discussion Papers 12464, Institute of Labor Economics (IZA).
    6. Christine Jolls, 2007. "Employment Law and the Labor Market," NBER Working Papers 13230, National Bureau of Economic Research, Inc.
    7. Bradley Heim & Ithai Lurie & Kosali Simon, 2015. "The Impact of the Affordable Care Act Young Adult Provision on Labor Market Outcomes: Evidence from Tax Data," Tax Policy and the Economy, University of Chicago Press, vol. 29(1), pages 133-157.
    8. Laura Bucila, 2008. "Employment-Based Health Insurance and the Minimum Wage," Working Papers 0812, College of the Holy Cross, Department of Economics.
    9. Lehrer, Steven F. & Pereira, Nuno Sousa, 2007. "Worker sorting, compensating differentials and health insurance: Evidence from displaced workers," Journal of Health Economics, Elsevier, vol. 26(5), pages 1034-1056, September.
    10. Nga Le Thi Quynh & Groot, Wim & Tomini, Sonila M. & Tomini, Florian, 2017. "Effects of health insurance on labour supply: A systematic review," MERIT Working Papers 2017-017, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    11. Jonathan Gruber & Brigitte C. Madrian, 2002. "Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature," NBER Working Papers 8817, National Bureau of Economic Research, Inc.
    12. Sarah Dolfin, 2006. "An examination of firms' employment costs," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 861-878.
    13. Kyung Min Lee & Chanup Jeung, 2021. "The incidence of the healthcare costs of chronic conditions," International Journal of Health Economics and Management, Springer, vol. 21(4), pages 473-493, December.
    14. Kanika Kapur, 2003. "Labor Market Implications of State Small Group Health Insurance Reform," Public Finance Review, , vol. 31(6), pages 571-600, November.
    15. Youjin Hahn & Myungkyu Shim & Hee-Seung Yang, 2021. "Industry Variations in Health Plans and Dynamic Employment Substitution," Journal of Labor Research, Springer, vol. 42(3), pages 449-467, December.
    16. Depew, Briggs, 2015. "The effect of state dependent mandate laws on the labor supply decisions of young adults," Journal of Health Economics, Elsevier, vol. 39(C), pages 123-134.
    17. Craig Garthwaite & Tal Gross & Matthew J. Notowidigdo, 2014. "Public Health Insurance, Labor Supply, and Employment Lock," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 653-696.
    18. Jennifer Feenstra Schultz & David Doorn, 2009. "Employer Health Benefit Costs and Demand for Part-Time Labor," Working Papers 09-08, Center for Economic Studies, U.S. Census Bureau.
    19. Scott Adams & Benjamin Artz, 2015. "Health Insurance, Familial Responsibilities and Job Satisfaction," Journal of Family and Economic Issues, Springer, vol. 36(1), pages 143-153, March.
    20. Velamuri, Malathi, 2009. "Taxes, Health Insurance and Women’s Self-Employment," MPRA Paper 15731, University Library of Munich, Germany.
    21. Katherine Baicker & Amitabh Chandra, 2005. "The Consequences of the Growth of Health Insurance Premiums," American Economic Review, American Economic Association, vol. 95(2), pages 214-218, May.

    More about this item

    Keywords

    Health care financing; Employer-based health insurance; Universal health care; E62; O41; C68;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:iaecre:v:19:y:2013:i:2:p:107-129:10.1007/s11294-012-9385-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.