The Interconnected Relationships of Health Insurance, Health, and Labor Market Outcomes

WP#2016-2

Abstract

The Affordable Care Act (ACA) has greatly increased the proportion of non-elderly Americans with health insurance. One justification for the ACA is that improving individuals’ access to health insurance would improve their health outcomes, mostly by increasing the probability that they have a regular source of care. Another is that increasing the availability of health insurance outside of employment reduces the “job lock” that ties poorly matched workers to their jobs only because they want to maintain coverage. This study reviews the literature on the relationships between health insurance and health, between health and work, and between health insurance and labor market outcomes directly. The review uses evidence from recent policy expansions in Oregon and Massachusetts, and among Social Security disability beneficiaries and Medicare enrollees, to evaluate the extent to which expansions have the expected effects on labor market outcomes, indirectly and directly.

This paper found that:

  • Health insurance generally improves health. The gains in mental health are the most consistent across studies, though most studies also find notable improves in physical health measures, including mortality.
  • Greater health generally allows for increased labor supply, though the strength of this relationship depends crucially on whether the health measure is objective or subjective, the group under consideration, and the study’s strategy for accounting for the endogeneity of the relationship.
  • Expanded access to health insurance increases transitions into self-employment and allows older workers to retire earlier, but the effect on labor force participation, employment, and job mobility is less clear.

 
The policy implications of this paper are:

  • Coverage expansions, including the ACA, are likely to result in a healthier and more productive pool of potential workers, and this effect is likely to increase labor supply.
  • But not many studies have examined the full chain of relationships directly, by following recipients of expanded coverage to see if their improved health causally increased labor supply, so further work is needed in evaluating coverage expansions.