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

59 Pages Posted: 17 Mar 2012

See all articles by Jonathan T. Kolstad

Jonathan T. Kolstad

University of Pennsylvania - Health Care Systems Department

Amanda Kowalski

University of Michigan at Ann Arbor - Department of Economics

Date Written: March 2012

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.

Suggested Citation

Kolstad, Jonathan T. and Kowalski, Amanda, Mandate-Based Health Reform and the Labor Market: Evidence from the Massachusetts Reform (March 2012). NBER Working Paper No. w17933, Available at SSRN: https://ssrn.com/abstract=2025309

Jonathan T. Kolstad (Contact Author)

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

Amanda Kowalski

University of Michigan at Ann Arbor - Department of Economics ( email )

Ann Arbor, MI
United States

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