Précis
How important is health insurance in today’s economy? Important enough to accept a job with health insurance instead of one without, even if the latter is a better fit? Or to choose not to retire, if it means losing insurance? For many workers in today’s economy the answer is "yes," according to Jonathan Gruber and Brigitte C. Madrian, in their report, "Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature (NBER Working Paper 8817). From their exhaustive assessment of the literature of the past 10 years, Gruber and Madrian have drawn two conclusions. First, the issue of adequate health insurance matters substantially when individuals are deciding whether they should change jobs or retire. Second, however, the implications of such decisions for the aggregate labor supply is inconclusive.
One element comes through clearly, however. Because the notion of job mobility is an important one in the U.S. economy, the ramifications of the lack of it are widespread. If workers are constrained in accepting jobs or leaving jobs, essentially they suffer from "job lock."
"Job lock" can occur in at least four situations—1) when a worker retains health insurance by continuing to work past the customary retirement age; 2) continuing to work in a job because it provides health insurance for the family in a two-earner family; 3) not accepting a job due to the loss of welfare benefits, which provide Medicaid; and 4) remaining in a job in which the worker may not be fully productive. The authors find that, on the whole, the burden of health insurance is shifted to worker wages in the form of pay discrimination. It is an insidious shift, in that, "relatively high cost groups (such as older workers or women of child bearing age)" are on the receiving end of lower wages. It also can affect people changing jobs, as they lose credit toward deductibles or the out-of-pocket costs rise. Their current jobs may offer better choices, thus inducing the worker to stay and making change unattractive. Privately purchased health insurance is often prohibitive in cost or at worst, unavailable; thus providing yet another inhibition in job choice, if none is offered by the employer.
Health insurance and retirement. Statistically speaking, older people are more likely to avail themselves of health care coverage. As the authors point out, "there is a clear deterioration in health and an increase in medical utilization/spending after age 55." If the older worker is in poor health, retirement begins to look better and better. At the same time, the issue of poor health "raises the value of employer-provided health insurance, increasing the cost of labor force departure." Some workers will need to wait until they are eligible for Medicare, if their employer fails to provide retiree health insurance. Medicare eligibility does not begin until age 65, which itself can serve as an effective deterrent to retirement if no other health insurance may be obtained. Almost without exception, the research indicates that retiree health insurance has a significant impact on the decision to retire.
Health insurance and labor supply of lower income single mothers. The studies that Gruber and Madrian surveyed regarding the labor market decisions of public assistance recipients reveal the potential loss of Medicaid to be a deciding factor in accepting work. This is a thornier issue to evaluate, however, as Medicaid benefits are " likely to have a strong independent effect on both labor supply and welfare participation." Another avenue to examine is the variety of other kinds of health insurance a worker might be eligible for if working. The results range from one finding that "a slight increase in the countrywide availability of employer-provided health insurance decreases the median Medicaid spell length by 3–11 months" to another study, which finds that "higher contribution rates for employer-provided health insurance lead to a decrease in the employment of single mothers."
Health insurance and married couples. Second-earner "job lock" may be faced by two-income couples, one of whom is self-employed and the other of whom is responsible for the family’s health insurance, which she (for it is most often the wife) receives through her employer. The authors find, overall, that the literature "gives strong and consistent support to the notion that health insurance affects individual labor supply decisions. When there is a ready source of health insurance available not attached to one’s own employment, individuals (particularly married women) are much less likely to be employed."
Health insurance and job turnover. This outcome is the most studied of all. It is also the most controversial in its findings. Researchers have used a variety of approaches; this variety, in turn, has led to an inconsonance in the overall findings concerning "job lock." Some researchers "find health insurance significantly impacts the job choice decisions made by workers; others find "no significant relationship between job choice and health insurance"; and still others find "evidence that varies by empirical specification or the sub-group analyzed, or effects that are not statistically significant."
Perhaps this is a good, even healthy, imbroglio. As the entire health care industry has evolved drastically over the last decade, so, too, has the research surrounding it. As Gruber and Madrian conclude, we have learned much about the effects of health insurance "on both labor supply and job mobility over the past ten years, but relatively little about the implications of these results." More finely focused work on the implications must be done over the course of the next decade. It certainly couldn’t hurt.
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