The Macroeconomic Consequences of Financing Health Insurance
Employer-financed health insurance systems, like that 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 inequality.
|Date of creation:||Feb 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +1(336) 278-6000
Fax: +1 (336) 278-5952
Web page: http://www.elon.edu/e-web/academics/business/economics/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
- Terry J. Fitzgerald, 1996. "Reducing working hours," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 13-22.
- 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.
- David M. Blau & Donna B. Gilleskie, 1997.
"Retiree Health Insurance and the Labor Force Behavior of Older Men in the 1990s,"
NBER Working Papers
5948, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Janet Currie & Brigitte C. Madrian, 1998.
"Health, Health Insurance and the Labor Market,"
JCPR Working Papers
27, Northwestern University/University of Chicago Joint Center for Poverty Research.
- Robert S. Smith & Ronald G. Ehrenberg, 1983.
"Estimating Wage-Fringe Trade-Offs: Some Data Problems,"
in: The Measurement of Labor Cost, pages 347-370
National Bureau of Economic Research, Inc.
- Robert S. Smith & Ronald G. Ehrenberg, 1981. "Estimating Wage-Fringe Trade-Offs: Some Data Problems," NBER Working Papers 0827, National Bureau of Economic Research, Inc.
- Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
- 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.
- Karsten Jeske & Sagiri Kitao, 2007. "U.S. tax policy and health insurance demand: can a regressive policy improve welfare?," Working Paper 2007-13, Federal Reserve Bank of Atlanta.
- Aaron Yelowitz, 1995.
"The Medicaid Notch, Labor Supply and Welfare Participation: Evidence from Eligibility Expansions,"
UCLA Economics Working Papers
738, UCLA Department of Economics.
- Yelowitz, Aaron S, 1995. "The Medicaid Notch, Labor Supply, and Welfare Participation: Evidence from Eligibility Expansions," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 909-39, November.
- A. S. Yelowitz, . "The Medicaid notch, labor supply, and welfare participation: Evidence from eligibility expansions," Institute for Research on Poverty Discussion Papers 1084-96, University of Wisconsin Institute for Research on Poverty.
- 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.
- 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, 09.
- 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.
- Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
- David M. Cutler & Brigitte C. Madrian, 1996.
"Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked,"
NBER Working Papers
5525, National Bureau of Economic Research, Inc.
- 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.
- Thomas C. Buchmueller & Robert G. Valletta, 1996.
"The effect of health insurance on married female labor supply,"
Working Papers in Applied Economic Theory
96-09, Federal Reserve Bank of San Francisco.
- 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.
- David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
When requesting a correction, please mention this item's handle: RePEc:elo:wpaper:2008-04. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Barbour)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.