Effects of Health Insurance on Labour Mobility

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Updated: May 16, 2022
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The risk on whole or part is covered by insurance of a person incurring on a person due to expenditure of medical related issues, saturating risk over certain number of people either large or small. The individual who purchases the protection of insurance has to make a minimum amount of per monthly payment, known as “premium”. The details of the premium are provided in the insurance agreement by a firm which provides the service of insurance.

At the most fundamental level, the labour market is a setting where people interested in working for compensation and organisations in need of labour for the process of production come together for the exchange labour of wages and other benefits.

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The results of this exchange are employment relationships on terms agreed upon by both workers options and firms.

A major dissimilarity between health and other forms of human resource is that health resource is often subject to large negative shocks. If discrepancies in the current health is largely affected by shocks, then uncertainty about the return to investments in resource of health will be very important, and ia an important part should be played by insurance in moderating the dynamic relation between the labor market and health.

Employment relationships are entered into voluntarily and therefore are considered to be mutually beneficial in the sense of being superior to all other available. In most of the standard human capital models, the concept of “health” is considered to be similar to the concept of “ability”. As we cannot measure ability, similarly it is quite difficult to measure health. Inability to properly measure health leads to a bias similar to “ability bias”.

It is prerogative to comprehend the interaction between health and labour market because health has a certain consequential impact on the labour market output which include various variables which include hours, retirement, occupational choice, wages. A number of social initiatives subtly impact the relation between the health of employee and the labour market , an understanding of this factors is important to know the efficiency of these initiatives. Also in the countries with aging population, it would become more critical with time to understand and take initiatives on this relationship as more and more people reach the age where health has the greatest impact on labour market outcomes.

Author Brigitte C. Madrian tells us about the dynamic interaction of labour market and health insurance. The interaction between labor market and health insurance play a very vital part of enabling people to make unique decisions which might affect the overall output by labour market. In order to comprehend the interaction of labour market and health insurance outcomes, the first attempt is to link these two variables which were done in the context compensating wage differentials. In a market place with competitive conditions, all the firms exist to maximize their profit.

According to the economic theory, what matters to these firms is the value of the total compensation package that they must offer to attract labour services. If the level of compensation is too low, the firm will not be able to attract the desired level of labour services. If the level of compensation is too high, the firm will be driven out of business by other companies with lower labour costs.

Thus, to attract and retain workers, employers will have to offer the employees compensation which is similar to that offered by other firms. The empirical literature suggests that access to health insurance has relevant effects on both labour force participation and choice of job.

In his initial studies on human resources, Becker(1964) formulated a correspondence between investment in health resource and investment in other forms of human resources. Health is supposed to be very similar to common human capital in more older models, as employers and employees tend to take it along with them while shifting from one job to the other.

The expenditure which is paid by the the organization for employee’s health insurance is transferred to the employee in the form of lower salary because of the basic expectation that people are supposed to bear the cost in their health investment. The employers might be willing to share the cost of investment if the returns to health and returns to the certain human resource are complementary to each other,.

Large pool of workplace insurance allows individuals to gain the advantages from insurance without a need to purchase huge insurance policy on single payer based healthcare. The information from (Congressional Research Service, 1988) shows that the per monthly insurance payment is higher in single payer and stresses on the smaller group (less than 5 employees) while the distribution of payment is lesser in larger group ( More than 10,000 employees). This stresses more on the efficiency small firms rather than the large firms.

The costs of health coverage both of employer and employee have skyrocketed and harming the international competitiveness of the country’s workforce. The workers fearing losing health coverage will tend to stick to unproductive jobs than to switch to more potentially productive job. The high costs of health coverage also added stresses on hiring of employees and the costs of healthcare has been passed on to employee wages in some cases which resulted into lack of wage growth.

To understand the effect of gender differences on the impact of health on participation Loprest et al. (1995) the impact of disabilities of labour involvement are greater for men then compared to that of women. It is very rare that women would give a reason as disability for leaving the labour force if their jobs demand less physical involvement. There have been evidences that men find being out of the labour force it to be more denounce than women.

Through various studies it has been observed that poor health leads to lower wages. Wages can be affected by health through by various factors. Firstly, A poor state of health might reduce productivity, resulting lower wages; secondly, Employer’s expenses of accommodating a worker whose health is affected might be transferred by reducing the wages; Thirdly, employees whose health is affected might be subject of discrimination.

According to the survey from (Government Accounting office, 1995) between 11 to 30 percent individuals reported that they or their family member remained at a job at some point in order not to lose healthcare. Over 20 percent who reported to have stayed at job which they didn’t want to stay because of the major factor of “preexisting conditions” and dependence on healthcare coverage. Both the above factors harm in job mobility and competitiveness.

As the retirement age is after 65 and the insurance is covered by Medicare program so it has little effect on job mobility. The lack insurance coverage does harm those individuals who are considering early retirement and fall between the age group of 55 to 64. Older employees remain on their jobs as they are likely face higher deterioration of health compared to younger employees. Over 12 percent 55-64 are uninsured.

The employees of age group 55-64 compared to age 35-44, are four times more likely to report poor health than the younger employees (Gruber and Madrian, 1995). Four times more likely to have had a stroke or cancer and seven more likely to have had heart attack, and five times as likely to have had heart disease. Twice as likely to have had admitted to the hospital and 40 percent more likely to have had prescribed medicine. The above factors contribute employees aged between 55-64 to spend twice than the younger employees and twice as variable of coverage than the 35- 44 year old. This being covered comprehensively through healthcare at workplace leads to older employees opt against early retirement as the medicare program cover only partial or few of the medical coverage, in a research done by FRANK SCOTT, MARK BERGER, and JOHN GAREN it was observed that in the presence of restriction against old age discrimination and discrimination in the provisions of extra benefits, higher health insurance costs adversely affects the older workers employment opportunity. In a nationwide survey of employers conducted by Employee Benefits Supplement of the Current Population Survey in 1991,1979,1983,1988,1993, revealed that the probability that a new hire was aged 55-64 was low in firms with health care plans as compared to the ones which do not have health care plans and was significantly lower in the firms with costly plans than those with less costly plans.

It is observed that it becomes very important to examine the reasons which affect the decision to employ older employee, as the portion of labour force consisting of older employees increases and more and more older employees look up for employment. Hutchens (1988) , established the fact that older employees were grouped in the smaller set of industries and professions than the newly employed younger employees. Also there existed firms which employed older employees but did not hire older employees, indicating that the employment opportunities were decreasing with age. Hutchens ascribed this pattern to fixed costs of employing , which make long tenure spells desirable and therefore results in back loaded compensation.

According to Hutchens, Benefit Pension plans are one of the different ways to backload the remuneration. Younger employees are employed instead of older employees by the firms who want to backload the remuneration. The authors developed the model which explained the firms which offer generous health insurance and benefit plans will not be willing to employ older employees. The firms which offer generous health insurance do not hire the older employee but tend to employ them. And the firms which offer benefit pension plans tend to not differentiate between the younger and the older employees. It was also found by increasing propensities towards mandating the benefits.

They have found outcomes that indicate the older employees are affected differently as compared to younger employee when it comes to mandating of health insurance. In a scenario of competing for part-time jobs with less benefits, older employees are on the same page with the younger employees. But when it comes to competing for the full time jobs with health insurance benefits they face stiff competition from younger employees. It argues that mandating the benefits of insurance universally would increase the harmful impact on the older employee’s job opportunities.

Apart from the government and the private insurance companies providing health insurance, a large number of people are insured under the employer provided health insurances. Since we know that employers willing fully provide health insurance, there has been an economic assumption that increase in health insurance cost will not affect employment outcomes. The moment the cost of health insurance increases, the burden would be shifted on the employee in the form of lower wages in order to keep the total compensation same. The workers who value the importance of health insurance would accept this wage reduction in order to continue receiving the health insurance. As a result, an increase in the cost of health insurance leads to decrease in wages but no change in employment.

There have been studies which attribute the increase in hours worked to rising insurance costs. These changes could be the result of the general changes in the labour demand or labour supply which is correlated with obtaining the health insurance. It could be a possibility that employees with the health insurance are more skilled than the employees without the health insurance.

Then changes in the demand for the skilled and unskilled labour the hours worked for each group. As we know that the health insurance is correlated with other benefits, it is crucial to distinguish the effects of health insurance from the effects of other benefits. To the degree that health insurance is correlated with other benefits, accounting for these benefits may reduce the direct effects of health insurance on hours of work. If the other benefits are fixed costs, the effect of health insurance might be greater for employees who also receive other benefits as compared to the employees who receive only health insurance.

In a research done by Katherine Baicker, Amitabh Chandra , they estimate the effect of rising health insurance premiums on wages, employment, and the distribution of part-time and full-time work using variation in medical malpractice payments driven by the recent “medical malpractice crisis.”

They estimate that a 10% increase in health insurance premiums reduces the aggregate probability of being employed by 1.2 percentage points, reduces hours worked by 2.4%, and increases the likelihood that a worker is employed only part time by 1.9 percentage points. For workers covered by employer provided health insurance, this increase in premiums results in an offsetting decrease in wages of 2.3%.

There have been studies which highlight the increasing healthcare costs over the 1980’s simultaneously lengthened the hours worked by the workers with health insurance by 3%. It has been argued that this was resulted due to the fact that health insurance is a fixed cost in nature, and when a situation arises where it becomes more expensive to provide, organisations face an opportunity to replace the hours per worker for employment.

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Effects of Health Insurance on Labour Mobility. (2019, Mar 22). Retrieved from https://papersowl.com/examples/effects-of-health-insurance-on-labour-mobility/