Health Insurance and the Labor Market: Theory and Experimental Design Katya Sherstyuk Yoav Wachsman Jerry Russo The Hawaii Coverage for All Project Technical Workshop 02/07/03

Health Insurance and the Labor Market: Motivation l Aim to study the effects of health insurance regulations on labor markets l Specifically, focus on the effect of 20-hour per week threshold rule for providing insurance: –Does the rule lead to market distortions and inefficiencies? (Distortion: e.g., employers may hire too few workers, or hire workers not best fitted for the job) –If yes, what alternatives would reduce/eliminate these distortions?

Health Insurance and the Labor Market: Theory l Rosen (1986): –Perfectly competitive labor markets, no wage rigidities => => no distortionary effects of health insurance on labor markets: lower wages, same employment –Market imperfections and wage rigidities => => distortions: “job locks” and “employment locks” l Summers (1989): mandated health insurance benefits avoid the deadweight loss of public (tax- financed) provision

Theory continued l Gruber (2001): mandates can be seen as an increases in health insurance costs –For employers, increased fixed costs => will desire increased hours by fewer workers; –Workers: will increase demand for part-time work l Mandates with a threshold 20-hour employment rule are unique to Hawaii, not discussed in the literature l We conjecture that such mandates may lead to distortions: –if worker productivities differ, efficiency may requires hiring the most productive workers full- time –Instead, employers will seek more fractional workers to save on the cost of insurance

Health Insurance and the Labor Market: Experimental Design l Simulate competitive labor markets with many firms and workers l Each worker has several (2) units of labor to sell l Worker differ in their labor productivity l Consider four treatments: –Employers do not have to offer heath insurance –Employers have to provide full health insurance for each worker they hire, either part- or full-time –Employers have to provide full health insurance to full-time workers, but not to part-time workers –Employers have to provide health insurance benefits in proportion to number of hours hired

Proposed analysis of experimental results l Consider which institution leads to highest efficiency, i.e., minimizes distortions l Given the findings, change the design to make the settings more realistic l Policy implications…