COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1855 Mandate-Based Health Reform and the Labor Market: Jonathan T. Kolstad and Amanda E. Kowalski March 2012 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. |
