How does insurance eligibility affect labor supply?

There is a new paper by Craig Garthwaite, Tal Gross, and Matthew J. Notowidigdo, the abstract is this:

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.

The NBER version of this piece is here, ungated hereCraig writes to me:

Applying our estimates to the ACA, this would mean a reduction in labor supply of about 0.3 to 0.6 percentage points (or about 500-900K people) just from this feature.

Is this a feature or a bug?  Reihan adds comment.


My eyes begin to glaze over whenever Lefty starts talking about health insurance policy. In all places and all times, third party payments drive up costs. Getting more people on insurance through increased cost shifting just drives cost higher. When faced with a cost problem driven by third party payments, which is the dilemma facing America, the solution is not more third party payments. But, there's money to be made right now in debating which song the band should play as the passengers scramble for the lifeboats.

Why are health care costs lower in all the nations with universal coverage and essentially 80-100% of all medical costs paid for by third parties??

If you believe rationing is controlling the costs in those nations, demonstrate the problems with rationing by comparing those affect to the working poor in the US without insurance and third parties paying for the majority of their health care. Ie. if delays in getting non-life critical care is bad in France, which are the same delays virtuous in the US for workers without any insurance coverage?

And in many places, like Africa, the majority of the modern health care is paid for by third parties, often disproportionately by sources in the US. Eg, PEPFAR - my guess is 70% of AIDS treatment in Africa is paid for from the US. The price of AIDS treatment has fallen dramatically for everyone as a result, and improved for everyone.

All goods and services are rationed. The fact that you don't know this or understand it, says you would be wise to put yourself on listen mode.

Glib,but mostly wrong. But, if you want to go there, we ration much more than those other countries, we just do it by price.


Or purely refusal of service.

"You have a pre-existing condition so we will not sell to you at any price because if you buy at the price we charge you, we will be screwed."

And "you do not have insurance, but this will cost so much we know you going to declare bankruptcy no matter what your promise about paying anything to save your child and we will be stuck with the bill."

Remember, the HHS estimates of the uninsurables turned out to be fifty times too large.

TD, I think you are confusing the number of uninsurables with the number of people who chose to purchase insurance through the high-risk pools. Those are two different numbers.

The high-risk pools were set up so the uninsurables could purchase insurance. If they chose not to, then they weren't being rationed out of health insurance.

Are houses rationed because not everyone can afford one?

I don't see how a system where some people don't get treated because they can't afford it is worse than a system where some people don't get treated because the government doesn't allocate resources to that treatment. In either case, not everyone is going to get every test of treatment they might want or need. The market-based system may distribute care less equally, but it also preserves the financial incentives to improve care, deliver it more efficiently, and bring down costs.

The system where people don't get care because the government hasn't allocated resources to that treatment isn't really a factor for 99% of people in enrolled in government programs. By and large people get what they need, and what they and their doctor thinks is appropriate. There are occasional situations where the particular treatment they'd prefer is not covered. But you know what, that happens in private insurance, too. It seems a much more humane way to ration care than by income. And the beauty of it is that if patients don't like the public programs' offerings they are free to spend their own money on whatever treatment they want.

The U.S. does about twice as much healthcare twice as many MRIs, twice as many organ transplants, better care for marginal infants, new drugs a year sooner, better cancer survival rates, more clinical trials than the rest of the world combined.

It's not just for the rich, either. I recently met someone whose 15-year-old daughter was "working on her second million" of medical treatment -- all of this on Medicaid, mind you -- for a very low-survivability type of brain tumor, which has now recurred. Sweet girl, terrible shame. I do not believe most countries would have paid millions to give her a few extra years.

In which State is Medicaid paying that much.

Not in NH when the State denied treatment for a child to much fanfare around the same time Oregon put in place its Medicaid rational rationing system, a decade or more ago. Oregon ranked every medical expense on a cost-benefit basis from highest benefit to lowests, drew a line at the point money ran out, which meant a kid like you mention was denied treatment. After the national "outrage" without calls to hike taxes to expand Medicaid, a similar case got media attention in hopes the publicity would change State policy. The State caved and paid for hospital bills if someone else paid for the treatment.

But insurers often have million dollar lifetime limits on the policies of small to mid-sized businesses and group policies. Many large self insured companies are willing to go higher.

But in any case, the super high spending on health care has not made US health care better than other nations with universal coverage. Unless you think having the upper class live five years longer as spending rises rapidly, while the lower 50% see no increase in life expectancy.

And the reason given for the high cost of health care is defensive medicine where doctors do twice as much as is justified, twice as many MRIs, twice as many tests, twice as many c-sections, twice as many expensive premature births,...

Probably not every state. This was in Illinois, which is probably somewhat above average in welfare payments per capita.

Life expectancy is not a measure of health care quality between OECD countries, the confounding factors are much larger (and of course most care is palliative). This is one of the worst misconceptions in the healthcare debate.

Here's two easy ways to check that: when adjusted by ethnicity, U.S. LE is among the highest in the world -- and while blacks do much worse (vitamin D is suspected), weirdly Latinos have higher LE than whites despite being poorer. And differences between U.S.states are as large as the differences within the OECD -- the Plains states have some of the highest LEs in the world, while the Lard Belt is worse than most OECD countries.

And yes, those extra MRIs are marginal, but most diagnostics are. It's more expensive, but if you're at the margins it may save your life. A really cost-effective healthcare system would provide little besides antibiotics and vaccines -- they account for less than 1% of healthcare spending but are responsible for most of the gains in LE -- but you might not want to live there :)

Apparently the answer is "Fade to Black."

My eyes glaze over when someone uses the word Lefty eight words into some nonsensical screed.

We already have third party payments, though this currently segmented third party "market" is probably the worst of all worlds. We enjoy all the benefits of changing plans, denied claims, figuring out what is "in-network" (du jour), with none of the drawbacks of a middle-man free system.

"My eyes begin to glaze over whenever Lefty..."

Ironically, my eyes glaze over whenever someone starts a sentence that way.

This might be over thinking Obama's master plan (?), but putting off the employer mandate is a way to slowly break up the employer based health insurance system. If the majority of the population (especially middle class whom benefits the most) did not have the employer based system, would the support for Obamacare jump a lot.
Give some time for the exchanges to work out, then employers will give the option to pay higher wages and employees pay for the plan. (I believe this idea went nowhere in Congress a few years.)

My guess this estimate is way too high and I expect with better consumer products, we would find more two income couples with one member going part time. Oddly enough it probably would effect state employees the most.

How about simply recognizing reality and simply avoiding all the lawsuits and court orders blocking the regulations based on all the comments not being responded to.

I haven't seen any similar outrage from conservatives over the failure of the Bush administration to implement the Clean Air Act in declaring CO2 from burning fossil fuels a harmful pollutant and then issuing regulations to limit them. In fact, it took years for States to take their lawsuits to the Supreme Court to get a decision ordering the issuance of regulations, but at the same time, regulations the Obama EPA issued were blocked as not meeting the requirements of the law, and thus the EPA could not issue regulations they negotiated with major players in the industry which had already complied but opposed by those who had been fighting the Clean Air Act for four decades.

If regulations had been issued and then blocked by a court over the regulatory process failing to respond fully to every comment, Republicans would still be opposed to the health system they designed to block a simple Medicare for All system. And they will still be opposed when the regulations finally meet court review and go into effect. While they have been promising repeal and replace for over three years, Republicans can't even start drafting a "replace" because it would look like Obamacare. Eric Cantor discovered that when he tried to introduce just a couple of pages of Obamacare to prove Republicans had solutions for the uninsurable in the free market.

Btw the way, John McCain called for ending the employer health benefit system in 2008, so if that happens, then Obama will only be compromising with John McCain and adopting a conservative Republican idea into Obamacare.

It was called the "Clean Air Act" not the "Global Warming Act." Yes, how odd the GOP didn't rush out and help destroy the energy industry because some unreliable computer models suggested it might get a few degrees warmer.

Breaking up the employer based system is key to actually fixing the health insurance market properly.

Perhaps the secret master plan is to force everyone into the individual market, then repeal the law and let everyone switch to high-deductible plans.

Let's ask a more comparable and relevant question:

Did the Mitt Romney Massachusett's experiment result in a decline in labor force participation?

I also looked at the history of TennCare, and wonder how the elements of the TennCare program that were cut--eligibility for persons who are UNINSURABLE, for example, or the disabled, or children of low income households--explain the story.

TennCare was actually based on the Clinton era healthcare legislation that died at the Federal level.

"In its first year of operation, TennCare enrollment quickly grew, leading to concern that it would exceed the number for which the federal government would share cost. In 1995, after enrollment reached 1.2 million, the state closed eligibility to uninsured adults.People who were deemed uninsurable, meaning that their applications for health insurance had been rejected because of a health condition, were still eligible to enroll."

JWatts, Check your facts: From the history of Tenncare:

"In mid-2005, the state terminated coverage for all uninsured and uninsurable adults, with the only
vestige of the original expansion being uninsured children who would be covered in other states as
an SCHIP group. (TennCare predated enactment of SCHIP, and so Tennessee has never
established an SCHIP program.)"

Your comment is true only with respect to children covered by SCHIP. Otherwise, false.

JWatts, Check your facts: From the history of Tenncare:

2005 is when they started dismantling TennCare. I wasn't necessarily disagreeing with your point, but clarifying that TennCare covered the uninsurable. When TennCare ceased to exist, except in name, everyone that would not be normally covered by Medicaid was kicked out of the program.

It's quite possible (and even probable) in my mind that a lot of adults who lost TennCare coverage were suddenly quite motivated to find jobs with employer health coverage.

In an economy at less than full employment, the effects would appear to be solely positive. Workers who work only for the health insurance will be able to buy health insurance and quit, and their positions will be filled by workers who work for a combination of health insurance and wages. This is a Pareto improvement, yes?

Not really. The reason that people can't afford health insurance is due to they have expensive pre-existing conditions. Banning discrimination based on pre-existing condition is a transfer from those that pay less today. They can quit because they are much richer due to the transfers from other people.

Depends who you are. Premiums for a typical middle aged woman are quite high in most states, regardless of whether she has pre-existing conditions. That woman will now have what I suppose many consider the privilege of buying health insurance now.

Just because you can't afford it, doesn't mean you don't have the "priviledge" of buying it.

That's like equating not being able to afford a car with having your driver's license revolked.

No, there are people who could not buy insurance for any price.

It may be just that she receives these transfers of wealth from other people, but she does receive transfers. I was responding to the Pareto Efficiency comment question specifically.

Start thinking, what you do now. Long distance 1000 calorie diet allow for freedom, yet you're taken. Long distance 1000 Calorie Diet allow both people to have their cake and eat it, perhaps we should try to understand those feelings. We have just started dating or have been married for many years. You feel your confidence ebbing away and a sense of belonging to all your family members have spent a lot less about what makes me seem normal. Men traditionally dictated where they and their partners lived; many still do.

That's great and all, but I'm not going to the Metallica concert unless you bring Horse_ebooks along.

Stop mocking mulp.

Surprisingly, incentives matter.

Have any studies been performed taking age and age groups into consideration? When I was younger I didn't really care about health insurance. Now that I'm older (although arguably I am healthy) health insurance is definitely a concern. Paul S Vigil

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I think creating a bit more churn in the labor market is a good thing. There are millions of baby-boomerish people who would like to retire early or do consulting/freelance type work who probably have avoided it due to concerns about health insurance. Millions of younger people are eager to move into real, adult jobs. This could accelerate that shift.

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The study is invalid because of a major logical flaw: human behavior is not time-reversible (almost nothing in nature is outside the simplest physical interactions). A correct study would look at what happens when people gain health insurance outside work, as when TennCare was implemented, or Romneycare in MA, or universal Medicare in Canada. The fact that no such study is presented leaves me to wonder if the desired effect was not found in such cases so the opposite instance was used instead with the unspoken assumption of time reversibility.

In any, most commenters here, whether Left or Right, have been largely agreed that that our system of tying healthcare to workplaces is supremely dumb, perhaps even the Original Sin of the whole system. So if we lose this large scale distortion of the labor market how is that a bad thing?

"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."

But employers need to offer health benefits to attract people who lost Tenncare. If they got a job at Wal-Mart because they needed the health benefit and then quickly discovered the health benefit paid less than the paycheck deduction, they ended up back on public health care, but now financed through debt default.

But likely the governments operating Tennessee offered health benefits, so they would get a school (as school aide), city or county or State government job. The ideal job would be working for the TSA or USPS which requires passing a background check, filling out forms accurately and following procedures over a long period.

And given most government employees are represented by unions, the unions are only working in the primary interest of the workers who only got the jobs because they need the health benefits, not because they have an interest in public service or any interest in a career or making a difference.

I argue universal comprehensive single payer would improve the quality of government workers - they could switch jobs easily and maybe find one they like enough to be good at, and government workers would go back to doing as a public servant, not out of desperation to get health care.

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