Health Insurance Reform and the Labor Market
One of the most under-discussed aspects of health reform is the extent to which our current system creates labor market rigidities and may stifle entrepreneurship and job creation. As is well known, despite the lack of guarantee, most people actually have health insurance. But they don’t just have health insurance by accident, nor do they just have health insurance in virtue of having a job. Rather, people engage in a far amount of insurance-seeking behavior—refusing to allow themselves to go uninsured for even a brief period of time, lest they lose the protections the law grants to people who maintain a continuous record of coverage.
Can you really quantify this impact? Well, based on Ezra Klein’s post on the subject it seems you sort of can’t:
But it’s pretty well understood that inadequate access to health coverage among the working and middle class also harms job creation. Unable to risk losing their employer-sponsored health insurance, would-be entrepreneurs don’t start small businesses, they stay in jobs that don’t maximize their productivity, they remain in positions that another worker would be better suited to. The magnitude of this sort of thing is hard to measure: It’s tough to tell how workers who do have health insurance would act if they did not have health insurance. Harvard’s Brigitte Madrian and MIT’s Jon Gruber have taken a stab at it, but they basically concluded that the evidence conflicts, and the best you can say is that “health insurance plays an important role in job mobility decisions.” More anecdotally, surveys show that workers say their health benefits are the number one reason they fear losing their jobs. But though you can argue over the precise size of the effect — just as you can argue over the precise effect of slightly higher taxes on the rich — it’s pretty clearly there, and it’s not obvious to me at least that it doesn’t totally overwhelm the labor market impact of the tax changes.
Well, it’s too bad there’s not more definitive evidence on this score. But to think about it another way, there’s a theory that shows how higher taxes ought to stifle growth. There’s also an empirical finding that plenty of high-tax countries are rich. This bit about health insurance is, most likely, part of the reason. The US system reduces labor market flexibility and biases the economy toward incumbents and large firms.
31 Responses to “Health Insurance Reform and the Labor Market”
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March 10th, 2009 at 8:49 am
This is one of those economic areas where, I fear, Republicans will try to derail something good because they see it in skewed market terms. There is generally a refusal on the Right to see how rising healthcare costs get priced (or not) in private enterprise settings; how they drive profits down or prices up; how they prevent workers from making major purchasing decisions; and thus there is a general refusal to see how reigning in health care costs will improve the economy. Sadly, because there has been a market failure where healthcare cost containment is concerned (remember the promise of HMO’s, anyone?), government is the only entity left who can get this back on track.
March 10th, 2009 at 8:57 am
The conservative approach to health care would have the same effect. They want everybody in individual plans with health savings accounts. Unfortunately their approach is not popular or politically feasible. They did have eight years to try to do conservative health care reform, but they didn’t so now we progressives get a stab at it. Personally I would create a single payer plan where people had to pay as much of their health care out of pocket as they could afford. You would still need to have exceptions for preventative care, but if people were really interested in having ‘private’ health care this is what they would push for. Instead we will have government regulated and subsidized private health insurance with less out of pocket expenses. Ideally wealthier people would pay more out of pocket, but I don’t think you can really do that with a public-private health care market.
March 10th, 2009 at 8:58 am
I would like to add to this. As an engineer, I sign an employment agreement that arguably says any intellectual output I produce pertaining to my field belongs to my company. This may or may not be enforceable in a courtroom. There is no such thing as “my time” that I could use to develop technologies that would belong to me so there is little incentive to spend my “free” time doing that. Whether or not the company wants to use that technology, they still own it. If I could get affordable health care coverage outside of a job, I could be tempted to instead contract my hours to the same employer (at a much higher per hour rate than I receive now), thus they would only receive the intellectual output for the hours they pay. That would leave me free to develop technologies on my own time that I could own completely.
March 10th, 2009 at 9:03 am
This disingenuous argument would make sense, except:
1) There is a large and inexpensive short-term health insurance market.
2) The US attrition rate (annual employee turnover) is already 30%! Greater incentives for labour mobility cost productivity as it takes on average half a year for a new employee to return to productivity.
Anyways, how unEuropean of you to argue America needs a higher attrition rate. It goes against every progressive argument for mandating job security. Of course it is nice to know labour market flexibility matters to some progressives.
March 10th, 2009 at 9:04 am
I think the real reason Republicans oppose nationalized health care is because it would give to much freedom to the worker.
Employer provided health care acts as a ball and chain around the worker. If health care wasn’t tied to the job, people would be free to move from job to job or start their own businesses without fear of losing their health coverage. People might be more willing to take risks and tell the boss s/he is wrong and what s/he wants to do won’t work.
It is the fear factor the Republicans want to keep.
March 10th, 2009 at 9:04 am
Not to mention the drag on the economy created when all companies also have to be social welfare agencies.
No matter what business you’re in, you’re also in the health care business. If you make pork rinds or car parts or if you’re a law firm, you also have to cultivate a capacity in health care. If you’ve outsourced all your non-core functions, including your product development and your mail room, you still need to be in the health care business.
Our health care system may benefit health insurers, but it’s terrible for every other business out there.
March 10th, 2009 at 9:08 am
1) There is a large and inexpensive short-term health insurance market.
Your short-term health insurance market sounds about as real as the market for large and inexpensive NYC apartments. Thar be unicorns! And inexpensive health insurance!
March 10th, 2009 at 9:17 am
There is a large and inexpensive short-term health insurance market.
Your short-term health insurance market sounds about as real as the market for large and inexpensive NYC apartments. Thar be unicorns! And inexpensive health insurance!
Just have a pre-existing condition and see how inexpensive it gets.
March 10th, 2009 at 9:27 am
Suppose the type of change MY envisions (via EK) took place. Immediately there’s an increase in labor market turnover as workers moved along from jobs they were hanging onto in part because of health insurance considerations. But how long would this increase in what gekko calls the labor market “attrition rate” remain? Once people had sorted themselves and their jobs out (and, more sluggishly, once employers had devised better matches between their compensation offers and the new health insurance provision machinery), would labor turnover remain much higher than it had been? Wouldn’t the consequence of a change be a one time (though perhaps lengthy) resorting and retooling in the labor market?
March 10th, 2009 at 9:39 am
Just have a pre-existing condition and see how inexpensive it gets.
It is like COBRA and HIPAA never happened.
And yes for the majority of healthy workers short-term insurance does provide an inexpensive insurance option for up to a year in between jobs. For the less healthy (and even the healthy if they so choose) they can still extend their old health care coverage at the old group rate.
Ezra is actually talking about entrepreneurship, so overall attrition rates don’t really address that issue.
Entrepreneurship is ambiguous and can usually be used by anyone for any argument without concern for evidence. For instance someone might say unionism helps entrepreneurship because it improves employee satisfaction and prodcutivity.
Attrition rates still apply because market flexibility is what Matt’s talking about.
March 10th, 2009 at 9:39 am
gordon gekko:
Personally, I wonder why companies don’t take steps to address it. My bet is that companies know the turnover rate is that high and don’t care. Employee satisfaction is obviously not very important to them. It costs a lot less to keep employees happy then to staff a decent sized HR department.
March 10th, 2009 at 9:41 am
It is like COBRA and HIPAA never happened.
Have you ever been on COBRA? You haven’t, otherwise you’d realize how expensive it is. Remember, most people on it are jobless or are working jobs that paid a lot less than when they had health insurance.
March 10th, 2009 at 9:44 am
It is like COBRA and HIPAA never happened.
Oh, COBRA happens… at $1200/month. Try again, lizard.
March 10th, 2009 at 9:47 am
Suppose the type of change MY envisions (via EK) took place. Immediately there’s an increase in labor market turnover as workers moved along from jobs they were hanging onto in part because of health insurance considerations. But how long would this increase in what gekko calls the labor market “attrition rate” remain? Once people had sorted themselves and their jobs out (and, more sluggishly, once employers had devised better matches between their compensation offers and the new health insurance provision machinery), would labor turnover remain much higher than it had been? Wouldn’t the consequence of a change be a one time (though perhaps lengthy) resorting and retooling in the labor market?
Of course. I wonder what turnover rates are in Europe. I’d have to think a lot less. The other thing that strikes me is that you’d think companies would want to reduce the turnover rate. I guess not. How productive can you be when your company is basically turning over every 3 years? It costs a lot for HR that could be better used for more productive means.
March 10th, 2009 at 9:49 am
I’m a walking anecdotal evidence for this, because I happen to live in Massachusetts. The guarantee of affordable insurance let me quit a so-so job and take a more productive one (that happened to not have insurance), and then a year later start my own business. Yay entrepreneurship, more productive use of human capital, etc.
Note, by the way, that the MA plan doesn’t require “socialized medicine” or whatever today’s bogeyman is – in my case, the missing piece was the state acting as a large buyer (and reseller) of private insurance, which let me buy in a pool rather than on the individual market. I still have Blue Cross; it’s not subsidized. I’m just guaranteed the ability to purchase it regardless of my job.
I wonder whether there’s enough data we can glean from the Massachusetts experience to make a stronger than anecdotal case, or whether it’s still too idiosyncratic.
March 10th, 2009 at 10:17 am
dantonj @ #5 hits the nail on the head: bosses hold the keys to the doctor’s office, and they can and do use that fact to push their employees around, just like mining companies used to use the benefit of company housing to manipulate whole communities (go on strike, get evicted!).
Would anyone put up with having your kids thrown out of public school when you lose your job, or losing the right to call the cops when you’re mugged, or the fire department when you need them?
The AFL-CIO has been pushing for years for an amendment to the NLRA that would make it illegal for employers to hire scabs on a permanent basis to replace striking employees (the “striker protection” bill). IMHO, passing a universal healthcare bill that divorced health coverage from employment would do much more to protect our rights as workers.
March 10th, 2009 at 10:32 am
COBRA lasts 18 months and only lasts if the company you worked for still exists. If you go 60 days uninsured, then find a new job, then the new insurance can claim a pre-existing condition.
That’s why a certificate of insurablity or whatever they call it is so important when insurance changes. The new insurance wants proof you have been covered the entire time. It is insane.
March 10th, 2009 at 10:41 am
I’ve always wanted to start my own consulting business. I also wanted to start a family. My husband’s small business cannot afford to provide healthcare so i needed to make sure i had coverage. The healthcare issue is what holds me back. I have a Master’s in Public Health and could provide great services to variuos organizations and businesses but instead I work as a sales rep providing a limited amount of my capabilities to our society because i have a family of five that needs health coverage. Easier access to healthcare would lighten the risk I would take to start up my own business.
March 10th, 2009 at 10:51 am
re: 20. Consulting (or any freelance work) can simply be incompatible with starting or raising a family, particularly if it’s the primary income. Even if you get insurance on the individual market, the deductibles are often set so high that a couple of nights in hospital for a sick child can wipe you out.
Single twentysomething internet startup types may wing it in the hope that they won’t get sick or trip on a flight of stairs and twist/sprain/break something. But both Google and Yahoo were both started by Stanford graduate students; Flickr was created in Soviet Canuckistan, on the back of a government grant.
March 10th, 2009 at 12:52 pm
It is like COBRA and HIPAA never happened.
Uh,I fail to see how patient privacy standards plays in to this discussion. COBRA is damned expensive: you have to pay your portion and your employer’s portion, and it only lasts 18 months, assuming your previous employer offered health care in the first place and is still in business in the second.
Moron.
March 10th, 2009 at 1:07 pm
Leaving a job to pursue an entrepreneurial opportunity is one component of the “attrition rate;” there may be some entrepreneurial zeal currently pent up in our job-based health insurance machinery that might burst free with a bang after major institutional change, but after a while the baseline rate of entrepreneurial flashs of genius or moxie would reassert itself. That’s what I meant, with respect to gekko’s comment.
March 10th, 2009 at 2:32 pm
#22
HIPPA enters into the discussion when you change jobs. Your employer isn’t allowed to know your health history or that it may raise their insurances costs. COBRA is expensive, and it represents about the real cost of insuring you. I think the number I have seen is 102% of the former employers costs. That is why reform is important along with coverage.
March 10th, 2009 at 5:29 pm
21-I am aware of the fact that starting a family and a consulting business are incompatible. That’s precisely why I didn’t start my own business. My point was that if there was a less expensive option to obtain health coverage for myself and my family I would have been willing to do it. I’ve seen the cost of my three births, ear tube surgeries, tonsils, hernias and other minor ailments. We could never have done it without me getting a job that provided health insurance. If there was a lower cost way to get health coverage I could make a nice living adding more to our society than I currently do at this job.
March 10th, 2009 at 7:53 pm
But though you can argue over the precise size of the effect — just as you can argue over the precise effect of slightly higher taxes on the rich
Of course, this is presuming that the “slightly higher” taxes on the rich will actually be sufficient to pay for the increased coverage.
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