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

  • Jonathan T. Kolstad
  • Amanda E. Kowalski

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. Buchmueller, Thomas C. & DiNardo, John & Valletta, Robert G., 2009. "The Effect of an Employer Health Insurance Mandate on Health Insurance Coverage and the Demand for Labor: Evidence from Hawaii," IZA Discussion Papers 4152, Institute for the Study of Labor (IZA).
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  4. Madrian, Brigitte & Cutler, David, 1998. "Labor Market Responses to Rising Health Insurance Costs," Scholarly Articles 2643643, Harvard University Department of Economics.
  5. 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," American Economic Review, American Economic Association, vol. 102(3), pages 498-501, May.
  6. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
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  8. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
  9. Naoki Aizawa & Hanming Fang, 2013. "Equilibrium Labor Market Search and Health Insurance Reform," NBER Working Papers 18698, National Bureau of Economic Research, Inc.
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  11. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  12. Kolstad, Jonathan T. & Kowalski, Amanda E., 2012. "The impact of health care reform on hospital and preventive care: Evidence from Massachusetts," Journal of Public Economics, Elsevier, vol. 96(11), pages 909-929.
  13. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  14. Gruber, Jonathan, 2000. "Health insurance and the labor market," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 12, pages 645-706 Elsevier.
  15. 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.
  16. Naoki Aizawa & Hanming Fang, 2013. "Equilibrium Labor Market Search and Health Insurance Reform," PIER Working Paper Archive 13-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  17. 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.
  18. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  19. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
  20. 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, vol. 75(1), pages 128-38, March.
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