Interaction of the Labor Market and the Health Insurance System: Employer-Sponsored, Individual, and Public Insurance

47 Pages Posted: 3 Feb 2020 Last revised: 1 Mar 2021

See all articles by Naoki Aizawa

Naoki Aizawa

University of Wisconsin - Madison - Department of Economics

Chao Fu

University of Wisconsin - Madison - Department of Economics

Date Written: January 2020

Abstract

The U.S. health insurance system for working-age households is characterized not only by its heavy dependence on the labor market but also by the segregation of risk pools across its three components: employer-sponsored health insurance (ESHI), individual health insurance exchange (HIX), and Medicaid. To assess the potential efficiency loss associated with this risk pool segregation, we develop and estimate an equilibrium model of labor and health insurance markets, with rich heterogeneity across local markets, households, and firms. We estimate the model exploiting variations across states and policy environments before and after the Affordable Care Act. We use the estimated model to implement counterfactual policies that cross-subsidize between ESHI and HIX, which include pure risk pooling between the two markets as a special case. We find that such policies would benefit most households, improve average household welfare, and decrease government expenditure. Furthermore, the welfare gains are larger if the cross subsidization is interacted with Medicaid expansion.

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Suggested Citation

Aizawa, Naoki and Fu, Chao, Interaction of the Labor Market and the Health Insurance System: Employer-Sponsored, Individual, and Public Insurance (January 2020). NBER Working Paper No. w26713, Available at SSRN: https://ssrn.com/abstract=3530684

Naoki Aizawa (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

William H. Sewell Social Science Building
1180 Observatory Drive
Madison, WI 53706-1393
United States

Chao Fu

University of Wisconsin - Madison - Department of Economics ( email )

Madison, WI 53706
United States

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