By Hanming Fand and Andrew Shepherd
Health insurance in the United States for the working age population has traditionally been provided in the form of employer-sponsored health insurance (ESHI). If employers offered ESHI to their employees, they also typically extended coverage to their spouse and dependents. Provisions in the Affordable Care Act (ACA) significantly alter the incentive for firms to offer insurance to the spouses of employees. We evaluate the long-run impact of the ACA on firms’ insurance offerings and on household outcomes by developing and estimating an equilibrium job search model in which multiple household members are searching for jobs. The distribution of job offers is determined endogenously, with compensation packages consisting of a wage and menu of insurance offerings (premiums and coverage) that workers select from. Using our estimated model we find that households’ valuation of employer-sponsored spousal health insurance is significantly reduced under the ACA, and with an “employee-only” health insurance contract emerging among low productivity firms. We relate these outcomes to the specific provisions in the ACA.
The health insurance system in the United States is very peculiar in the sense that it is provided by employers (or at least most of them) and includes coverage for spouses. The fact that health insurance is tied to one’s job does not look good for the insurance aspect of it, but it sure gives unlimited research potential for economists thanks to all the general equilibrium effects this entails in all sorts of markets. That paper is a nice example of this.