How Universal Health Care
Would Influence Decisions
About Work and Retirement
by Jonathan Barry Forman
The current U.S. health care system distorts individual decisions about work
and retirement. After a brief explanation of how the current health care sys-
tem works, this article reviews those distortions and considers how individu-
als would respond to the implementation of a universal health care system.
The author argues that the likely adverse impacts of an employer health in-
surance mandate on low-skilled workers could be more than offset by a well-
designed system of government subsidies.
he structure of the American health
care system significantly affects the
work and retirement patterns of
Americans. Under the current system,
most Americans are covered by a
health insurance plan related to em-
ployment. In general, having health
care tied to employment encourages
individuals to enter and remain in the
On the other hand, working does not guarantee
health care coverage. Employers are not required to
provide health care coverage to their employees; yet
people who work typically earn too much to be cov-
ered by Medicaid. Of the 46.6 million (15.9%) Amer-
icans without health care coverage in 2005, 27.3 mil-
lion were between ages 18 and 64 and worked during
the year, and 21.5 million of them worked full time
(DeNavas-Walt et al. 2006,Table 8).
All in all, our predominantly employment-based
health care system has a considerable influence on
work and retirement behavior, but not all of that in-
fluence is positive. After a brief explanation of how
the current health care system works, this article ex-
plores how the current system distorts individual de-
cisions about work and retirement.
Finally, this arti-
cle considers how individuals would respond to the
implementation of a universal health care system.
OVERVIEW OF THE U.S.
HEALTH CARE SYSTEM
In 2004, national health expenditures totaled
$1,877.6 billion, 16.0% of the gross domestic product
(National Center for Health Statistics 2006, Table
120). The per capita health care expenditure was
$6,280. The United States currently spends about
twice as much, per capita, on health care as other in-
dustrialized nations (OECD 2006, 209).
The principal coverage mechanisms are employ-
ment-based health insurance, Medicare and Medic-
aid. In 2005, for example, 174.8 million Americans
(59.5%) were covered by employment-based private
health insurance; 26.8 million (9.1%) bought their
own private insurance; 80.2 million (27.3%) had gov-
ernment health insurance (i.e., Medicare, Medicaid or
military health care); and 46.6 million (15.9%) had no
coverage (DeNavas-Walt et al. 2006,Table C-1).
Most nonelderly Americans receive their health