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Where Do The Sick Go? Health Insurance and Employment in Small and Large Firms

  • Kanika Kapur

    ()

    (School of Economics, University College Dublin, Belfield, Dublin 4, Ireland)

  • José J. Escarce

    ()

    (Division of General Internal Medicine and Health Services Research, Department of Medicine, David Geffen School of Medicine at UCLA, Los Angeles, CA 90095, USA)

  • M Susan Marquis

    ()

    (RAND, 1200 South Hayes Street, Arlington, VA 22202, USA)

  • Kosali I. Simon

    ()

    (Department of Policy Analysis and Management, Cornell University, Ithaca, NY 14853, USA)

Small firms that offer health insurance to their employees may face variable premiums if the firm hires an employee with high-expected health costs. To avoid expensive premium variability, a small firm may attempt to maintain a workforce with low-expected health costs. In addition, workers with high-expected health costs may prefer employment in larger firms with health insurance rather than in smaller firms. This results in employment distortions. We examine the magnitude of these employment distortions in hiring, employment, and separations using the Medical Expenditure Panel Survey from 1996 to 2001. We find that workers with high-expected health costs are less likely to be new hires in insured small firms and are less likely to be employed in insured small firms. We find no evidence that state small group health insurance reforms designed to restrict insurers' ability to deny coverage and restrict premium variability have reduced the extent of these distortions.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 74 (2008)
Issue (Month): 3 (January)
Pages: 644-664

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Handle: RePEc:sej:ancoec:v:74:3:y:2008:p:644-664
Contact details of provider: Web page: http://www.southerneconomic.org/

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  1. Davidoff, Amy & Blumberg, Linda & Nichols, Len, 2005. "State health insurance market reforms and access to insurance for high-risk employees," Journal of Health Economics, Elsevier, vol. 24(4), pages 725-750, July.
  2. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
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  9. Willard G. Manning & John Mullahy, 1999. "Estimating Log Models: To Transform or Not to Transform?," NBER Technical Working Papers 0246, National Bureau of Economic Research, Inc.
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  11. Royalty, Anne Beeson & Abraham, Jean M., 2006. "Health insurance and labor market outcomes: Joint decision-making within households," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1561-1577, September.
  12. Thomas Buchmueller & John DiNardo, 1999. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidencefrom New York, Pennsylvania and Connecticut," NBER Working Papers 6872, National Bureau of Economic Research, Inc.
  13. Kanika Kapur, 2003. "Labor Market Implications of State Small Group Health Insurance Reform," Public Finance Review, , vol. 31(6), pages 571-600, November.
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  15. Kanika Kapur, 1998. "The impact of health on job mobility : a measure of job lock," Open Access publications 10197/297, School of Economics, University College Dublin.
  16. Kanika Kapur, 1998. "The Impact of health on job mobility: A measure of job lock," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(2), pages 282-298, January.
  17. David Cutler, 1994. "Market Failure in Small Group Health Insurance," NBER Working Papers 4879, National Bureau of Economic Research, Inc.
  18. Monheit, Alan C. & Steinberg Schone, Barbara, 2004. "How has small group market reform affected employee health insurance coverage?," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 237-254, January.
  19. Alan C. Monheit & Jessica Primoff Vistnes, 1999. "Health Insurance Availability at the Workplace: How Important are Worker Preferences?," Journal of Human Resources, University of Wisconsin Press, vol. 34(4), pages 770-785.
  20. Ilayperuma Simon, Kosali, 2005. "Adverse selection in health insurance markets? Evidence from state small-group health insurance reforms," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1865-1877, September.
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