Public Health Insurance, Labor Supply, and Employment Lock

From Craig Garthwaite, Tal Gross, Matt Notowidigdo:

We study the effect of public health insurance eligibility on labor supply by exploiting the largest public health insurance
disenrollment in the history of the United States.  In 2005,
approximately 170,000 Tennessee residents abruptly lost public health insurance coverage.  Using both across- and within-state variation in exposure to the disenrollment, we estimate large increases in labor supply, primarily along the extensive margin.  The increased employment is concentrated among individuals working at least 20 hours per week and receiving private, employer-provided health insurance.  We explore the dynamic effects of the disenrollment and
find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment. Our results suggest a significant degree of “employment lock” – workers employed primarily in order to secure private health insurance coverage.  The results also suggest that the Affordable Care Act – which similarly affects adults not traditionally eligible for public health insurance – may cause large reductions in the labor supply of low-income adults.

It’s important to highlight their point that reductions in labor supply do not imply reductions in social welfare.

Our results suggest that ACA-related decreases in labor supply among this group of low-income workers could reduce the aggregate employment rate by between 0.3 and 0.6 percentage points. Importantly, this predicted reduction would be driven by changes in labor supply and therefore would not necessarily imply a welfare loss for individuals choosing to exit the labor force. Additionally, considerable caution should be exercised in interpreting these predictions, and we provide a number of important caveats below. However, our findings suggest that institutional features of health insurance in the US can cause a phenomenon we call “employment lock.”  This occurs when individuals supply labor primarily to secure private health insurance through an employer. If such individuals could instead acquire affordable health insurance apart from their employer, many of them would exit the labor force entirely. As a result of employment lock, policies that expand access to health insurance apart from employers (such as the ACA) may have large labor market effects.

In addition, this was a Medicaid population. My prior is that the largest labor supply impacts would be among the elderly who are nearing retirement but keep working to maintain their health coverage before the Medicare eligibility age. Here’s a bit more context on the program in the study:

In 2005, Tennessee discontinued its expansion of TennCare, the state’s Medicaid system.  The TennCare disenrollment was the largest public health insurance disenrollment in the history of the United States. Approximately 170,000 adults (roughly 4 percent of the state’s non-elderly, adult population) abruptly lost public health insurance coverage over a three-month period.

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About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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