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Employment-based health insurance and misallocation : implications for the macroeconomy.

Chivers, D. and Feng, Z. and Villamil, A. (2017) 'Employment-based health insurance and misallocation : implications for the macroeconomy.', Review of economic dynamics., 23 . pp. 125-149.


Most working-age Americans obtain health insurance through the workplace. U.S. law requires employers to use a common price, but the value of insurance varies with idiosyncratic health risk. Hence, linking employment and health insurance creates a wedge between the marginal cost and benefit of insurance. We study the impact of this wedge on occupational choice and welfare in a general equilibrium model. Agents face idiosyncratic health expenditure shocks, have heterogeneous managerial and worker productivity, and choose whether to be workers or entrepreneurs. First, we consider a private insurance indemnity policy that removes the link between employment and health insurance, so only ability matters for occupational choice. By construction, this is the most efficient policy. We find a welfare gain of 2.28% from decoupling health insurance and employment. Second, we tighten the link by increasing employment-based health insurance from the current U.S. level of 62% to 100%, and find a welfare loss of – 0.61%.

Item Type:Article
Full text:(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
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Publisher statement:© 2016 This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Date accepted:03 September 2016
Date deposited:15 March 2017
Date of first online publication:09 September 2016
Date first made open access:09 March 2018

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