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Author: Lang, Kevin ; Kang, Hong
Working Paper: Worker Sorting,Taxes and Health Insurance Coverage (PDF) ; November 2004

Abstract:
We develop a model in which firms hire heterogeneous workers but must offer all workers insurance benefits under similar conditions. In equilibrium, some firms offer health insurance for free, some require an employee premium payment and some do not offer insurance. Making the employee contribution pre-tax lowers the cost of the premium and encourages more firms to charge. This increases the offer rate, lowers the take-up rate, increases (decreases) coverage among high (low) demand groups, with an indeterminate overall effect. We test the model using the expansion of section 125 plans between 1987 and 1996. The results are generally supportive.

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Author: Lang, Kevin ; Kang, Hong
Working Paper: Why Do Firms Offer Multiple Health Plans? (PDF) ; November 2004

Abstract:
Although health insurance coverage of workers fell during the 1980s and 1990s, the proportion of workers offered a choice of plans grew rapidly. We develop a model in which some private employers offer a single health insurance plan while others offer multiple plans. The existence of multiple plans not only reflects heterogeneous tastes but also allows firms to offer a relatively unattractive plan for free and a more attractive plan at a lower cost to those who find the more attractive one valuable. We calibrate the model to explain the change between 1987 and 1996 in the offer rate, proportion of workers offered a choice of plans, the take-up rate and the coverage rate. Our results suggest that the increased frequency with which firms offer a choice of health insurance plans reflects changes in the relative price of different plans and the increase in the proportion of skilled workers. These factors more than offset the decline in the tax wedge between employer- and employee-paid premiums.