CBO Examines Health Insurance/Labor Market Relationship

The possible impacts of reform in the private and public health insurance markets on employment is a significant discussion item.  The Congressional Budget Office has issued a primer providing useful background.  (CBO Report) The CBO first notes that about 60% of non-elderly Americans, or 150 million people, have employment-based health care coverage.  The average cost is $5000 for a single, 84% of which is picked up by the employer, and $13,000 for a family, 73% of which is employer-paid.   The CBO, however, adopts the standard economic explanation that all the cost is actually born by the employee in the form of lower wages.

CBO then looks at some of the likely effects of work-based health insurance on employment decisions.  Some people may decide to work, or to work longer, because of the need for access to health insurance.  Studies show that workers with health insurance that continues into retirement tend to retire earlier than those who do not.  Some employees may be reluctant to change jobs for fear of losing insurance or having to change providers if their insurance plan changes.

Certain reforms to the insurance market could affect the job market and  job decisions.  Requirements that employers provide insurance or pay a fee might lead to fewer jobs or to lower wages at firms not currently offering insurance.   A surcharge on companies whose employees used public health programs such as Medicaid would likely have similar, perhaps larger, effects.  Individual subsidies to purchase insurance might create a disincentive for people to work or work more, as they might lose the subsidy.  This appears to be true for Medicaid.  Capping the exclusion of health benefits from taxable income could have the opposite effect, leading people to work more, or spend less on health.  Measures to expand the individual-purchased insurance market could lead people to work less and might encourage more job changes.

The CBO report helps understand one set of potential consequences of various reform proposals.