Econ+157+Topic+B+Employer+Provision+of+Health+Insurance

Econ+157+Topic+B+Employer+Provision+of+Health+Insurance -...

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EMPLOYER-SPONSORED HEALTH INSURANCE, THE UNINSURED, AND TECHNOLOGICAL CHANGES Econ 157 - Topic B Econ 157: Mortimer 2/10/2010 1
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Employer-Provided Health Insurance: Introduction In 2007, of almost 202 million people with health coverage, over 177 million people obtained the coverage from their employer and over 83 million received health insurance through the government (Current Population Survey, US Census) Econ 157: Mortimer 2/10/2010 2
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Employer-Provided Health Insurance: Employment Supply of labor – opportunity cost of labor Demand for labor – value of marginal product of labor: MP L Initial equilibrium (without employer-provided health coverage): w 0 and L 0 The employer offers health coverage that is worth $1/hour and costs $1/hour S D w o L 0 Labor Money wage Econ 157: Mortimer 2/10/2010 3
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Employer-Provided Health Insurance: Employment Insurance may cost more than workers’ valuation Moral hazard: medical expenditures > the area under D The employer offers health coverage that is worth $1/hour and costs $2/hour Econ 157: Mortimer S D w o L 0 Labor Money wage 2/10/2010 4
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Employer-Provided Health Insurance: Tax Implications Employees’ total compensation can be allocated between money and insurance (1-t)C = m + i t = income tax rate C = total compensation m = money i = insurance m = (1-t)C - i Econ 157: Mortimer m i m 0 i 0 2/10/2010 5
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Employer-Provided Health Insurance: Tax Implications Health coverage is exempt from income tax if the employer pays for it (1-t)(C-i) = m m = (1-t)C – (1-t)i Econ 157: Mortimer m i m 0 i 0 (1-t)C i 1 m 1 2/10/2010 6
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Employer-Provided Health Insurance: Wages Some studies found that health insurance is correlated with high wages But more productive workers get both…. Many empirical studies confirm that workers pay for their health insurance through lower wages Jensen and Morrisey (2001) Older workers with health insurance had annual wages about $6,300 lower than those without Adams (2007) In 1993 New York imposed community rating on firms in the small group market The wages of older workers in small firms increased relative to the wages of older workers in large firms in NY or in other states after the reform Econ 157: Mortimer 2/10/2010 7
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Employer-Provided Health Insurance: Other Issues Employer coverage provides scale economies and lower prices Employer coverage reduces adverse selection Employer groups tend to contain a broad mix of risks Workers tend to postpone retirement until they are eligible for Medicare at age 65 Self-insurance is expensive for older people Those age 55 to 64 have medical spending that is almost twice as large and twice as variable as those age 35 to 44 (Gruber and Madrian (2002)) Econ 157: Mortimer 2/10/2010 8
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Employer-Provided Health Insurance: Job Mobility Job-lock: employer-provided insurance tends to reduce worker mobility
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Econ+157+Topic+B+Employer+Provision+of+Health+Insurance -...

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