Equilibrium Labor Market Search and Health Insurance Reform

84 Pages Posted: 14 Jun 2018 Last revised: 20 Jul 2018

See all articles by Naoki Aizawa

Naoki Aizawa

University of Wisconsin-Madison Department of Economics

Hanming Fang

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: June 11, 2018


We present and empirically implement an equilibrium labor market search model where risk averse workers facing medical expenditure shocks are matched with firms making health insurance coverage decisions. Our model delivers a rich set of predictions that can account for a wide variety of phenomenon observed in the data including the correlations among firm sizes, wages, employer-sponsored health insurance offering rates, turnover rates and workers' health compositions. We estimate our model by Generalized Method of Moments using a combination of micro datasets including the Survey of Income and Program Participation, the Medical Expenditure Panel Survey and the Kaiser Family Employer Health Insurance Benefits Survey. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and compare it with other health care reform proposals. We also use the estimates of the early impact of the ACA as a model validation. We find that the full implementation of the ACA would reduce the uninsured rate among the workers in our estimation sample from about 21.3% in the pre-ACA benchmark economy to 6.6%. We also find that income-based premium subsidies for health insurance purchases from the exchange play an important role for the sustainability of the ACA; without the premium subsidies, the uninsured rate would be around 15.8%. In contrast, as long as premium subsidies and health insurance exchanges with community ratings stay intact, ACA without the individual mandate, or without the employer mandate, or without both mandates, could still succeed in reducing the uninsured rates to 11.4%, 7.5% and 12.9% respectively.

Keywords: Health, Health Insurance, Health Care Reform, Labor Market Equilibrium

JEL Classification: G22, I11, I13, J32

Suggested Citation

Aizawa, Naoki and Fang, Hanming, Equilibrium Labor Market Search and Health Insurance Reform (June 11, 2018). ShanghaiTech SEM Working Paper No. 2018-010, Available at SSRN: https://ssrn.com/abstract=3195661 or http://dx.doi.org/10.2139/ssrn.3195661

Naoki Aizawa

University of Wisconsin-Madison Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
United States

Hanming Fang (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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