Mandate-Based Health Reform and the Labor Market: Evidence from the Massachusetts Reform
We model the labor market impact of the three key provisions of the recent Massachusetts and national "mandate-based" health reforms: individual and employer mandates and expansions in publicly-subsidized coverage. Using our model, we characterize the compensating differential for employer-sponsored health insurance (ESHI) -- the causal change in wages associated with gaining ESHI. We also characterize the welfare impact of the labor market distortion induced by health reform. We show that the welfare impact depends on a small number of "sufficient statistics" that can be recovered from labor market outcomes. Relying on the reform implemented in Massachusetts in 2006, we estimate the empirical analog of our model. We find that jobs with ESHI pay wages that are lower by an average of $6,058 annually, indicating that the compensating differential for ESHI is only slightly smaller in magnitude than the average cost of ESHI to employers. Because the newly-insured in Massachusetts valued ESHI, they were willing to accept lower wages, and the deadweight loss of mandate-based health reform was less than 5% of what it would have been if the government had instead provided health insurance by levying a tax on wages.
We thank Iris Chan, Erin Taylor, and especially Michael Punzalan and Aditi Sen for excellent research assistance. Amitabh Chandra, John Friedman, Ben Handel, Lauren Nichols, Matt Notowidigdo, and Hugh Gravelle provided helpful conference discussions. This project has benefited greatly from comments from Priyanka Anand, Bjoern Bruegemann, Tom Buchmueller, Marika Cabral, Joseph Doyle, Bill Gale, Alex Gelber, Michael Grossman, Martin Hackmann, Charles Kolstad, Kory Kroft, Fabian Lange, Amanda Pallais, Mark Pauly, Vincent Pohl, Ebonya Washington, Heidi Williams, and Clifford Winston. We are also grateful for comments by seminar participants at Brookings, Brown, BU/Harvard/MIT Health Econ Workshop, the Bureau of Economic Analysis, FRB Richmond, Harvard, Penn, UC Berkeley, Yale School of Public Health, the ASSA meetings, the European Econometrics and Health Economics Workshop, iHEA, the Midwestern Health Economics Conference, the National Tax Association annual meeting, NBER Summer Institute, the New York Health Economics Workshop, and the Utah Winter Business Economics Conference. Funding from the National Institute on Aging grant #P30 AG012810, the Leonard Davis Institute for Health Economics, the W.E. Upjohn Institute for Employment Research, and the Wharton Dean's Research Fund are gratefully acknowledged. During work on this project, Kowalski was the 2011-2012 Okun Model Early Career Fellow at the Brookings Institution. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- The Patient Protection and Affordable Care Act (PPACA), passed in 2010 and recently upheld by the U.S Supreme Court, is the most profound...
Journal of Health Economics, Volume 47, May 2016, Pages 81–106 citation courtesy of