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Author: Dey, Matthew ; Flinn, Christopher
Working Paper: An Equilibrium Model of Health Insurance Provision and Wage Determination (PDF) ; December 2003
Research Findings (HTML)

We investigate the effect of employer-provided health insurance on job mobility rates and economic welfare using a search, matching, and bargaining framework. In our model, health insurance coverage decisions are made in a cooperative manner that recognizes the productivity effects of health insurance as well as its nonpecuniary value to the employee. The resulting equilibrium is one in which not all employment matches are covered by health insurance, wages at jobs providing health insurance are larger (in a stochastic sense) than those at jobs without health insurance, and workers at jobs with health insurance are less likely to leave those jobs, even after conditioning on the wage rate. We show that for inefficient mobility decisions to occur in our framework requires that firms be heterogeneous with respect to their costs of providing health insurance. We estimate the primitive paramters of the model using data from the SIPP 1996 panel and find that the empirical implications of the estimated model are in accord with both the data and anecdotal evidence. Heterogeneity in the distribution of firm costs of health insurance does lead to some inefficient (in the short-run) mobility decisions, but the vast majority of moves from job to job are associated with productivity improvements.

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Author: Dey, Matthew ; Flinn, Christopher
Ongoing Project: Health Insurance and the Household Search (PDF) ; November 2005

Research Description:
Even though health insurance can be purchased through private markets, the cost is considered prohibitive in comparison with the effective cost of purchasing health insurance through an employer. Another empirical regularity regarding health insurance purchase and coverage is that in households in which both husbands and wives work health insurance is often only purchased (through their employer) by one of the spouses. Apparently this reflects the fact that health insurance is largely a public (household) good in that most employers who offer health insurance to their employees also include the option to cover spouses and dependent children. Our goal is to investigate the implications of the "publicness" of health insurance coverage for the labor market careers of spouses and the cross-sectional distribution of wages and health coverage statuses of spouses.