Academic journal article Contemporary Economic Policy

Employer-Provided Health Insurance and Job Mobility: Did the Affordable Care Act Reduce Job Lock?

Academic journal article Contemporary Economic Policy

Employer-Provided Health Insurance and Job Mobility: Did the Affordable Care Act Reduce Job Lock?

Article excerpt

I. INTRODUCTION

In the United States, about three of five fulltime workers obtain health insurance through their employer. In a 2008 survey by the Employee Benefit Research Institute, 25% of workers cited health insurance as the reason they or an immediate family member passed up an opportunity to change jobs or retire (EBRI 2008). This reluctance to change jobs for fear of losing employer-sponsored health insurance is known as the job lock effect, and is seen as a flaw in the employer-based health insurance system. The Affordable Care Act (ACA) passed in March 2010 was intended, among other things, to increase the availability of health insurance plans that are not tied to employment. In particular, it introduced health insurance exchanges, expanded Medicaid, and mandated access to health coverage for young adults through their parents' plans. Proponents and supporters of the ACA hoped that these provisions would reduce job lock. Theda Skocpol and Katherine Swartz made the argument clear in a USA Today editorial titled "Obamacare cures 'job lock': Health reform is undoing what is known as 'job lock'." We look at the early evidence of the ACA and investigate whether the dependent coverage mandate that took effect in September 2010 fulfills the aspirations to reduce job lock. The mandate requires health insurance family plans to offer coverage to children up to 26 years old. Economists have estimated that as a result 2-3 million young adults acquired dependent coverage (Akosa Antwi et al. 2013). We build on this work and compare job mobility among the group that gained a new option for health insurance, 19- to 25-year-olds to a control group of slightly younger and older workers. Using a difference-in-difference research design, we consistently find that the dependent coverage mandate did not increase job mobility among young adults.

As the dependent coverage mandate succeeded in expanding coverage and has been found to have many other effects in the health care and labor markets, (1) we argue that our findings imply that job lock among young adults is insubstantial. We make three major contributions in our study. First, we provide evidence on the effect of the dependent coverage mandate on job mobility. Our second contribution is that we evaluate the effect of job lock specifically among young adults, while most earlier literature looked at all working-age adults. Finally, the dependent coverage mandate provides a plausibly exogenous increase in the availability of health insurance not tied to employment. This means that our estimates of the importance of job lock do not suffer from endogeneity bias to the extent that most of the literature on job lock does.

II. BACKGROUND

A. The U.S. Health Care System and Job Lock

Most Americans obtain health insurance coverage from an employer. Changing jobs means losing access to their current insurance plan. The potential new employer may offer no plan, or an inferior one. In addition, changing plans involves switching costs: it might involve choosing a different health care provider as well as a different plan design, which could entail changing the copayment rates, reimbursement scheme, coverage limits, and deductible for covered expenses. Handel (2013) estimated that workers have high "inertia," and are willing to forgo an average of $2,032 per year to avoid switching plans, even when they remain with the same employer. The time between jobs could be spent without coverage as well. For these reasons, many economists and health policy writers suggest that the employer-based health insurance system reduces job mobility. Gruber and Madrian (2002) identified a dozen economics papers that find some evidence of job lock, and hundreds of popular press articles have discussed it.

Concern over job lock contributed to the passage of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, which incentivizes employers to allow employees to remain on their health insurance for up to 18 months after leaving their job. …

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