Equilibrium Labor Market Search and Health Insurance Reform, Second Version

72 Pages Posted: 3 Jul 2015

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)

Date Written: June 28, 2015

Abstract

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, 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 Survey of Income and Program Participation, Medical Expenditure Panel Survey and Robert Wood Johnson Foundation Employer Health Insurance Survey. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and find that it would reduce the uninsured rate among the workers in our estimation sample from about 22% in the pre-ACA benchmark economy to less than 4%. 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 18%. 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 7.34%, 4.63% and 9.22% respectively.

Additional versions of this paper can be found at:

http://ssrn.com/abstract=2199551

http://ssrn.com/abstract=3197257

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, Second Version (June 28, 2015). PIER Working Paper No. 15-024, Available at SSRN: https://ssrn.com/abstract=2625669 or http://dx.doi.org/10.2139/ssrn.2625669

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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