Health Insurance, Cost Expectations, and Adverse Job Turnover
AbstractIn our theoretical model some firms do not offer health insurance to their employees because of large between-firm heterogeneity in expected employee health care costs. Because job turnover rates for healthier employees reduce by less than those for sicker employees when firms offer health insurance, expected health costs will increase when health insurance is offered. We call this adverse job turnover. State regulations on annual premium changes, and insurer reluctance to rapidly increase premiums mean that coverage is only offered to small firms at premiums above initial expected costs. The resulting separating equilibrium is one in which some firms face high initial premiums, choose not to offer insurance, and tolerate higher turnover rates than other firms the same industry that offer insurance. High administrative costs at small firms exacerbate selection. Using 1998-99 MEDSTAT MarketScan and 1997 Employer Health Insurance Survey data we find that expected employee health expenditures at firms offering insurance have lower within-firm and higher between-firm variance than at firms not offering insurance. Turnover rates are systematically higher in industries not offering insurance, and small firms have lower withinfirm variance but greater between-firm variance than large firms in their employee’s age and income distributions. These support our model.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2007-034.
Date of creation: Jul 2007
Date of revision:
health insurance; job turnover; adverse selection;
Other versions of this item:
- Randall P. Ellis & Ching‐to Albert Ma, 2011. "Health insurance, cost expectations, and adverse job turnover," Health Economics, John Wiley & Sons, Ltd., vol. 20(1), pages 27-44, January.
- NEP-ALL-2007-08-14 (All new papers)
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