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Mandate-Based Health Reform and the Labor Market: Evidence from the Massachusetts Reform

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  • Jonathan T. Kolstad
  • Amanda E. Kowalski

Abstract

We model the labor market impact of the three key provisions of the recent Massachusetts and national “mandate-based" health reforms: individual and employer mandates and expansions in publicly-subsidized coverage. Using our model, we characterize the compensating differential for employer-sponsored health insurance (ESHI) -- the causal change in wages associated with gaining ESHI. We also characterize the welfare impact of the labor market distortion induced by health reform. We show that the welfare impact depends on a small number of “sufficient statistics" that can be recovered from labor market outcomes. Relying on the reform implemented in Massachusetts in 2006, we estimate the empirical analog of our model. We find that jobs with ESHI pay wages that are lower by an average of $6,058 annually, indicating that the compensating differential for ESHI is only slightly smaller in magnitude than the average cost of ESHI to employers. Because the newly-insured in Massachusetts valued ESHI, they were willing to accept lower wages, and the deadweight loss of mandate-based health reform was less than 5% of what it would have been if the government had instead provided health insurance by levying a tax on wages.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17933.

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Date of creation: Mar 2012
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Handle: RePEc:nbr:nberwo:17933

Note: AG HC PE
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  1. Martin B. Hackmann & Jonathan T. Kolstad & Amanda E. Kowalski, 2012. "Health Reform, Health Insurance, and Selection: Estimating Selection into Health Insurance Using the Massachusetts Health Reform," NBER Working Papers 17748, National Bureau of Economic Research, Inc.
  2. Jonathan T. Kolstad & Amanda E. Kowalski, 2010. "The Impact of Health Care Reform On Hospital and Preventive Care: Evidence from Massachusetts," NBER Working Papers 16012, National Bureau of Economic Research, Inc.
  3. Gruber, Jonathan, 2000. "Health insurance and the labor market," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 12, pages 645-706 Elsevier.
  4. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  5. 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.
  6. Krueger, Alan B. & Kuziemko, Ilyana, 2013. "The demand for health insurance among uninsured Americans: Results of a survey experiment and implications for policy," Journal of Health Economics, Elsevier, Elsevier, vol. 32(5), pages 780-793.
  7. Katherine Baicker & Amitabh Chandra, 2005. "The Effect of Malpractice Liability on the Delivery of Health Care," NBER Chapters, in: Frontiers in Health Policy Research, Volume 8 National Bureau of Economic Research, Inc.
  8. Richard V. Burkhauser & Sean Lyons & Kosali I. Simon, 2011. "The Importance of the Meaning and Measurement of “Affordable” in the Affordable Care Act," NBER Working Papers 17279, National Bureau of Economic Research, Inc.
  9. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 128-38, March.
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Cited by:
  1. Nicolas R. Ziebarth & Martin Karlsson, 2009. "The Effects of Expanding the Generosity of the Statutory Sickness Insurance System," SOEPpapers on Multidisciplinary Panel Data Research 245, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Jacob Glazer & Thomas G. McGuire & Julie Shi, 2013. "Risk Adjustment of Health Plan Payments to Correct Inefficient Plan Choice from Adverse Selection," NBER Chapters, in: Measuring and Modeling Health Care Costs National Bureau of Economic Research, Inc.
  3. Yaa Akosa Antwi & Asako S. Moriya & Kosali Simon, 2012. "Effects of Federal Policy to Insure Young Adults: Evidence from the 2010 Affordable Care Act Dependent Coverage Mandate," NBER Working Papers 18200, National Bureau of Economic Research, Inc.
  4. Benjamin R. Handel & Jonathan T. Kolstad, 2013. "Health Insurance for “Humans”: Information Frictions, Plan Choice, and Consumer Welfare," NBER Working Papers 19373, National Bureau of Economic Research, Inc.
  5. Casey B. Mulligan, 2013. "Average Marginal Labor Income Tax Rates under the Affordable Care Act," NBER Working Papers 19365, National Bureau of Economic Research, Inc.
  6. Charles J. Courtemanche & Daniela Zapata, 2012. "Does Universal Coverage Improve Health? The Massachusetts Experience," NBER Working Papers 17893, National Bureau of Economic Research, Inc.
  7. Mazumder, Bhashkar & Miller, Sarah, 2014. "The Effects of the Massachusetts Health Reform on Financial Distress," Working Paper Series, Federal Reserve Bank of Chicago WP-2014-1, Federal Reserve Bank of Chicago.
  8. Martin B. Hackmann & Jonathan T. Kolstad & Amanda E. Kowalski, 2013. "Adverse Selection and an Individual Mandate: When Theory Meets Practice," NBER Working Papers 19149, National Bureau of Economic Research, Inc.
  9. Neale Mahoney, 2012. "Bankruptcy as Implicit Health Insurance," NBER Working Papers 18105, National Bureau of Economic Research, Inc.
  10. Benjamin R. Handel & Igal Hendel & Michael D. Whinston, 2013. "Equilibria in Health Exchanges: Adverse Selection vs. Reclassification Risk," NBER Working Papers 19399, National Bureau of Economic Research, Inc.
  11. Jacob Glazer & Thomas McGuire & Julie Shi, 2014. "Risk Adjustment of Health Plan Payments to Correct Inefficient Plan Choice from Adverse Selection," NBER Working Papers 19998, National Bureau of Economic Research, Inc.
  12. Kristopher J. Hult & Tomas J. Philipson, 2012. "Public Liabilities and Health Care Policy," NBER Working Papers 18571, National Bureau of Economic Research, Inc.
  13. Jeffrey Clemens & David M. Cutler, 2013. "Who Pays for Public Employee Health Costs?," NBER Working Papers 19574, National Bureau of Economic Research, Inc.
  14. Rong Hai, 2013. "The Determinants of Rising Inequality in Health Insurance and Wages," Working Papers, Becker Friedman Institute for Research In Economics 2013-007, Becker Friedman Institute for Research In Economics.
  15. Casey B. Mulligan, 2013. "Is the Affordable Care Act Different from Romneycare? A Labor Economics Perspective," NBER Working Papers 19366, National Bureau of Economic Research, Inc.

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