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Employment and Adverse Selection in Health Insurance

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  • Jayanta Bhattacharya
  • William B. Vogt

Abstract

We construct and test a new model of employer-provided health insurance provision in the presence of adverse selection in the health insurance market. In our model, employers cannot observe the health of their employees, but can decide whether to offer insurance. Employees sort themselves among employers who do and do not offer insurance on the basis of their current health status and the probability distribution over future health status changes. We show that there exists a pooling equilibrium in which both sick and healthy employees are covered as long as the costs of job switching are higher than the persistence of health status. We test and verify some of the key implications of our model using data from the Current Population Survey, linked to information provided by the U.S. Department of Labor about the job-specific human capital requirements of jobs.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12430.

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Date of creation: Aug 2006
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Handle: RePEc:nbr:nberwo:12430

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  1. David M. Cutler & Sarah Reber, 1996. "Paying for Health Insurance: The Tradeoff between Competition and Adverse Selection," NBER Working Papers 5796, National Bureau of Economic Research, Inc.
  2. Thomas C. Buchmueller & John DiNardo & Robert G. Valletta, 2002. "Union effects on health insurance provision and coverage in the United States," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(4), pages 610-627, July.
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  7. Rebecca M. Blank, 1994. "Social Protection versus Economic Flexibility: Is There a Trade-Off?," NBER Books, National Bureau of Economic Research, Inc, number blan94-1.
  8. Thomas Buchmueller & John Dinardo, 2002. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut," American Economic Review, American Economic Association, vol. 92(1), pages 280-294, March.
  9. Brigitte C. Madrian, 1993. "Employment-Based Health Insurance and Job Mobility: Is There Evidence ofJob-Lock?," NBER Working Papers 4476, National Bureau of Economic Research, Inc.
  10. Jonathan Gruber, 2000. "Tax Subsidies for Health Insurance: Evaluating the Costs and Benefits," NBER Working Papers 7553, National Bureau of Economic Research, Inc.
  11. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  12. David M. Cutler & Richard J. Zeckhauser, 1997. "Adverse Selection in Health Insurance," NBER Working Papers 6107, National Bureau of Economic Research, Inc.
  13. Jonathan Gruber, 2002. "Taxes and Health Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 16, pages 37-66 National Bureau of Economic Research, Inc.
  14. Bruce Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (U.S.).
  15. Cochrane, John H, 1995. "Time-Consistent Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 445-73, June.
  16. Douglas Holtz-Eakin, 1994. "Health Insurance Provision and Labor Market Efficiency in the United States and Germany," NBER Chapters, in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 157-188 National Bureau of Economic Research, Inc.
  17. David M. Cutler & Richard J. Zeckhauser, 1999. "The Anatomy of Health Insurance," NBER Working Papers 7176, National Bureau of Economic Research, Inc.
  18. Alan C. Monheit & Philip F. Cooper, 1994. "Health insurance and job mobility: Theory and evidence," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(1), pages 68-85, October.
  19. Robert Kaestner & Kosali Ilayperuma Simon, 2002. "Labor market consequences of state health insurance regulation," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(1), pages 136-159, October.
  20. Gary S. Becker, 1994. "Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition)," NBER Books, National Bureau of Economic Research, Inc, number beck94-1.
  21. Crocker, Keith J & Moran, John R, 2003. " Contracting with Limited Commitment: Evidence from Employment-Based Health Insurance Contracts," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 694-718, Winter.
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Cited by:
  1. Thomas C. Buchmueller & Alan C. Monheit, 2009. "Employer-Sponsored Health Insurance and the Promise of Health Insurance Reform," NBER Working Papers 14839, National Bureau of Economic Research, Inc.
  2. Kanika Kapur & José J. Escarce & M Susan Marquis & Kosali I. Simon, 2008. "Where Do The Sick Go? Health Insurance and Employment in Small and Large Firms," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 644-664, January.
  3. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.
  4. Laura Bucila, 2008. "Employment-Based Health Insurance and the Minimum Wage," Working Papers 0812, College of the Holy Cross, Department of Economics.

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