Academic journal article Contemporary Economic Policy

Measuring the Impact of Valuing Health Insurance on Levels and Trends in Inequality and How the Affordable Care Act of 2010 Could Affect Them

Academic journal article Contemporary Economic Policy

Measuring the Impact of Valuing Health Insurance on Levels and Trends in Inequality and How the Affordable Care Act of 2010 Could Affect Them

Article excerpt

I. INTRODUCTION

The public-use version of the Current Population Survey--Annual Social and Economic Supplement (CPS)--is the most commonly used data set to capture yearly levels and trends in U.S. income and its distribution. Each year the Census Bureau reports (U.S. Census Bureau 2009) the previous year's median pre-tax, in-cash income of households (from both public and private sources) as well as how the household size-adjusted, pre-tax, post-transfer, in-cash income of persons is distributed. Most researchers outside of the Census Bureau who use the CPS to capture levels and trends in income and income inequality also focus on this cash measure of income. (1) (See Atkinson and Brandolini 2001 and Gottschalk and Smeeding 1997, for reviews of this literature.)

Yet few of these studies consider the importance of excluding non-wage compensation from these measures. Here, we do so, by focusing on the resource value of employers' contributions to health care. It is the most important component of voluntary non-wage compensation, accounting for 32% of voluntary non-wage compensation and 22% of all non-wage compensations (Pierce 2001). Like other types of compensations, employer-provided health insurance is a resource that can be "directly" consumed each year.

To be consistent in our efforts to show the importance of health insurance on household resources, we consider the resource value of both employer- and government-provided health insurance, via Medicare and Medicaid, on measured levels of household income and its distribution over time.

We do so by the following:

1. Estimating a broader measure of household income that adds employer-provided health insurance contributions and the ex ante value of government-provided health insurance (Medicaid and Medicare) to the traditional measure of household income (household size-adjusted, pre-tax, post-transfer, in-cash income of persons). Importantly, we use the ex ante cost of this insurance to employers and to the government as our measure of its resource value to the households, not the ex post payments made for health-care services used by these households.

2. Showing the sensitivity of traditional in-cash measures of the level and distribution of income to the addition of the "equivalent income value" of these two health insurance resources. Our focus throughout (except in Figure 1) is on household size-adjusted income of individuals. To examine how the addition of these health insurance values changes trends in inequality by age, we split the population into four age categories: children (aged 0-18), young adults (aged 19-25), working age (aged 26-62), and retirement age (aged 63 and over).

3. Examining how income inequality has changed over the period 1995-2008 based on this broader measure of income.

4. Providing an application showing the importance of our expanded measure of income using a stylized example of current policy relevance. We examine the change in the level and distribution of total income (our broader measure of income including the value of health insurance) from two key features of the Affordable Care Act (ACA) of 2010--the expansion in Medicaid provision to those with incomes below 133% of the poverty line and the provision of publicly funded subsidies and premium tax credits to individuals living in families between 133% and four times the official poverty line for purchasing private coverage on the state-run exchanges. Our aim is not to capture the precise details of how the ACA will affect health insurance coverage or income measures. Rather, it is to illustrate the importance of putting an explicit value on the provision of government-subsidized health insurance coverage in "social success measures" which researchers use to capture public policies' impact on the resources available to all Americans.

II. RELATED STUDIES

The importance of fringe benefits and non-wage compensation has been considered in the earnings inequality literature (Chung 2003; Levy 2006; Pierce 2001, 2010). …

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