Wedges, Labor Market Behavior, and Health Insurance Coverage Under the Affordable Care Act

Abstract

The Affordable Care Act's taxes, subsidies, and regulations significantly alter terms of trade in both goods and factor markets. We use an extended version of the classic Harberger model to predict and quantify consequences of the Affordable Care Act for the incidence of health insurance coverage and patterns of labor usage. If and when the new exchange plans are competitive with employer-sponsored insurance (ESI), more than 21 million people will leave ESI as a consequence of the law. Behavioral changes are expected to add 2 million participants to the new exchange plans: beyond those that would participate solely as the result of employer decisions to stop offering coverage and beyond those who would have been uninsured. We find large differences in coverage-pattern impacts based on the benefit (including tax incentives) of joining exchange plans and degree to which statutory penalties on individuals and firms are implemented. Industries and regions will grow, decline, and change coverage on the basis of their relative demand for skilled labor.