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Equilibrium Labor Market Search and Health Insurance Reform

Author

Listed:
  • Hanming Fang

    (University of Pennsylvania)

  • Naoki Aizawa

    (University of Pennsylvania)

Abstract

We empirically implement an equilibrium labor market search model where both wages and health insurance provisions are endogenously determined and use it to predict the impact of the 2010 U.S. health insurance reform on health insurance coverage and labor market outcomes. In our model, employers make a health insurance coverage decision by taking into account health composition of their employees. By offering health insurance, they may attract unhealthy workers who both increase their health insurance costs and decrease their labor productivity, generating an adverse selection problem. On the other hand, because health insurance coverage can improve employees' future health status, the cost generated by the adverse selection will be reduced over time. In equilibrium, more productive employers benefit more from the latter channel, leading to a positive correlation among wage, health insurance coverage, and employer size, which is consistent with the data. We estimate the model using Survey of Income and Program Participation, Medical Expenditure Panel Survey, and Robert Wood Johnson Employer Health Insurance Survey. We use the model estimates to evaluate the equilibrium effects of several features of the health insurance reform.

Suggested Citation

  • Hanming Fang & Naoki Aizawa, 2012. "Equilibrium Labor Market Search and Health Insurance Reform," 2012 Meeting Papers 959, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:959
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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