Health Economics ECON 40447
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This 0 page Class Notes was uploaded by Dr. Tracy Kulas on Sunday November 1, 2015. The Class Notes belongs to ECON 40447 at University of Notre Dame taught by William Evans in Fall. Since its upload, it has received 41 views. For similar materials see /class/232728/econ-40447-university-of-notre-dame in Economcs at University of Notre Dame.
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Date Created: 11/01/15
Figure 6 Number Uninsured and Uninsured Kale 198719 2007 457 mllllorl Employer mandates and health insurance reform ECON 40447 Bill Evans 153 percem Uninsured vale Uninsured NonElderly Population by Work Status of Exhibit 21 Percentage of Firms Offering Health Benefits 19992009 Family Head 2007 m 90 l ionwolker 110 V 20 quot A 59 mm V 10 was was Fart ye arfaltnme 63 90 51 30 0 an 50 4 quot 50 Pan year fulltime 40 via r 115 30 20 Filll yeaL ull hme Fullyea pan nine worker Worker 5 7 1399 2000 20m 2002 2003 2004 2005 2000 2007 2003 2009 5 83944 near benefits souma Kaise IRET 5mm 91 Elrpbyvrsymmleu quotaim Bengals mm Exhibit 22 Health Em Workers mm may Workers u we Firms 200 or Mm Work ALL FtRMS so in All Small erg 15mm is mummy Migrant lmm scum lnr m pmviaussar slimn was Nara mm hm Dawns Snurce Kmrwn Sungym Employer Spansnmd Haslm Senelils 199 gm Introduction Tax code encourages firms to provide health insurance to workers Therefore employers are the primary source of health insurance for the non elderly nonindigent Also the primary reason for such a high uninsurance rate Many reform proposals are centered around expanding insurance through employers Pay or Play Firms must pay minimum fraction of wage bill to health insurance or pay that as a fine Proposed in 26 states in 2006 adopted in MA as part of their major health care reform Language firms must pay their fair share Insurance is one component of a compensation package Increased costs in one area will be paid for by reducing on costs in another wages ln long run costs will be borne by workers Current examples House bill Pay 72565 or individualfamily premium or pay 8 payroll tax Exempt firms lt 500K payroll Senate HELP bill pay 60 of premium or 750 fine for each uninsured fulltime employee exempt firms wlt25 workers Will firms pay or play In March 2007 Private industry Average hourly comp 2761 Wagessalaries 1834 71 Health insurance 183 71 The 71 includes lots of firms that pay nothing so conditional on providing health care firms largerfraction ofwage bill on ins WalMart pays 57 40 workers covered by insurance provided by WalMart 10 Estimates of House plan CBO estimates fines will generate 33 bill peryear Average per worker cost is 56K 2000 hours x 28hour 8 is 4480 39 33 billion4480 7366071 will ignore There are roughly 16 million uninsured workers Figure 5 erage under 39 Firms are Eligible for the Exzhange 1011 millionsquot 1034 426 343 320 Tradeoffs The government sometimes mandates employers provide a particular benefit Sometimes the government taxes the firm and then provides the benefit to all When is one more preferred than another Do we get less distortions from one program than another Current context Should the government Mandate firms provide health insurance Tie the benefit to employment only bene t those that work Should it tax current workers and provide the benefit directly to all Similar but distinct distortions in both cases Examples Many examples of government mandates firms required to provide some benefit to workers a benefit tied to employment Three key examples Unemployment insurance Workers compensation Social security Example Unemployment insurance All states required to pay for unemployment insurance UI for workers lflforkers receive Ul is they are firedlayed Do not receive benefits ifthey quit Premium is a function of Earnings benefit level firm s previous history ofjob turnover Raise taxes to pay for some Governmentprovided benefit Premiums are collected from firms Suppose that the govt will provide some benefit TO ALL not just to workers Benefit is not contingent on employment B f39t 39ddbttUl ene I S are prom e y S a e The funds forthis program must come pregrams from somewhere For simplicity lets assume it will come Program taxes firms then provides from a payroll tax collected from firms workers with a benefit Fixed costs per hour of employment Increase in the hourly costs of labor What might that tax be Example cost of health insurance D1 is the original demand for labor before the payroll tax AtW1 firms willing to hire H1 hours Remember Y axis is the wage transacted Assume health Insurance costs between rms and employees 5000person per year and people work Impose a payroll tax of sthour 2000 hoursyear For every hours hired Roughly 25hour of work Firms pays wage to worker Additional t to government Average workers works 2000 hoursyear 50 weeks 40 hoursweek Palert to firm Pay t to govt W Pay Wt in total Underthe payroll how much are firms Willing to hire Wl To hire H1 hours wage must fall to Wyt With excise taxidemand oAri yrlgilllsing to pay a total ofW1 per hour if it ME by the we Ofme W Wl t Firms pays W1t to workers Addition t to the govt Total ofW1 DH Payroll tax shifts down the demand for labor by amount equal to the tax Market equilibrium before tax vv1 H1 W1 Payroll tax shifts down the demand for W Jr labor by an amount equal to the tax Market clearing wage falls to W2 employment falls to H2 Di The payroll tax to fund health insurance D has distorted the labor market Tax incidence who pays for the tax Notice two things Wage received by workers has fallen from W1 to W2 Workers are paying for the coverage in the form of lower wages Wage paid by the firm has increased Wage transacted between rmworker fallen from toW2 Total compensation is W2 t so cost has increased from W1 to W2 Old friend dead weight loss has appeared again Because labor demand had declined consumer s surplus has shrunk Old CS Area above line Wyd and below demand New CS Area above line WZaand below demand Because supply has fallen there is a change in producers surplus Old P8 area below line Wyd and above supply New P8 area below WZC and above supply Total surplus has fallen by Area facdg Some ofthat area is captured by the government in the form of taxes H2t area facg Firms pay area fabh Workers pay area hbcg An area is lost adg dead weight loss of taxation W2t WW Addtto rm c051 W2 gcaf tax revenues W hbcg What rms W2t fabh What consumers Pay for tax W1 W2 acd DWL D1 Employer mandate Employers must provide health insurance to workers Suppose that the cost of the program is t per hour to the firm The mandate has the same impact as a per unit payroll tax To hire H1 hours firm is willing to pay W1 With a tax the only way they would hire H1 is if wages fell to W1 t W1 What about labor supply Height of supply curve represents what people would supply to labor market at prevailing wage Position of labor supply curve is a function of job attributes When the job improves people willing to supply more at any prevailing wage As quality ofjob declines they supply less Original supply curve is S1 At wage W1 workers willing to supply H1 With employer mandate firms now provide health insurance Workers value the insurance so at any hours they are willing to take less in wages for the same job supply curve shifts down by a distance equal to the benefit S1V W1 W2 Put some more structure Monetize the benefits that workers place on the new mandate Workers value at an amount equal to V per hour Supply curve shifts down by an amountjust equal to the value Before mandate willing to supply H1 at W1 After willing to supply H1 at W1V ReceiveW1vfrom job ReceiveV from new mandated bene t orW1 in total W1 Sup fall byvert dlstance v Three cases Case 1 V0 workers do not value mandate at all Case 2 VltT Workers value the mandate less than they pay in taxes Case 3 VT Workers value the mandate at what it costs them in taxes What we are going to do Case 1 Consider what is more efficient govt Labor demand mandate firms provide or govt tax and Undertax will shift down by the amount ofthe tax then provide Under mandatewi shiftdown by the amount ofthe E1 Is Initial eqUIIIbrlum implicit tax E2 is equilibrium under govt taxprovision E3 is equilibrium under employer mandate 39 LabOFSUPPWi Will not change in either situation because workers do not valueE1 original equilibrium W 8182 What would be the equilibrium ifthe govt El taxed firms and directly provided the W benefit W2 Would be the same firm has an E2 9 increased cost of employment labor supply stays the same In this case govt mandate and govt D14 provision is the same Case 2 Vltt W Demand curve falls byt Supply curve falls by v 45 H 4E Case 2 Govt Provision W 81 Without mandates Equilibrium E1 H1 El hours workers required W1 in wage W With mandates equilibrium E3 Quality of the job improves so supply curve falls new hourswages are H3NV3 What is the equilibrium ifthe govt taxes and provides the benefits directly E2 Govt mandates look superior in this case W2 Case 2 Govt Mandate W 81 W 81 52 y a r 52 E1 439 x 4 Supply falls W1t W1 s BW s W1y W2 E2 W1 r W3 x x r r x D1 r r x x DH H2 H3 H1 H3 H 5B Case 2 Govt mandate Case 3 Vt Workers Get hourly wage of W1 Receive benefit ofv Getjob worth W1 v per hour Firms Pay hourly wage of W1 Pay tax oft per hour Have hourly costs of W1t Demand curve shifts down by t Supply curve shifts down by v W W 51 x x W1 X E2 V M wn H 53 H2 W H 54 Workers Receive W1t in an hourly wage Receive t in benefits Receive W1tt W1 in hourly benefits Firms Pay W1 t in hourly wage Payt in benefits Pay W1 in total compensation per hour When workers value the bene t Mandates are superior to govt taxprovision Why when tie benefits to the job the labor market distortions of govt taxprovision are reducedeliminated because of a supply response Key result if workers value benefits they pay for the mandated benefits in the form of lower wages Example Supply Ws 4013L Demand Wd 190 23L W is daily wage L is number of workers willing to work a full day Market equilibrium 405 1L 190 23L 150 L w 40 13150 90 Case 1 Suppose a mandates increases costs by 30day Workers do not value the benefit What is the market outcome Demand for workers will fall by a vertical distance of the tax or 30 Nothing will happen to supply Wd t 190 23L 30 160 23L Wd t Ws 160 23L 40 13L L 120 Ws 4013L 5013120 80 L has fallen by 30 units Wage received by workers has fallen by 10 from 90 to 80 Cost per day for firms hiring workers has increased by 20 Old wage is 90 New cost is 80 wage 30 110 cost per day in benefits Case 3 Suppose workers value the benefit at 30day V30 Labor supply curve will shift down by an amount equal to the benefit Wd t is still 16023L Supply is now Wsv 4013L 30 WsV 10 13L New market equilibrium Wdt Wsv 160 23L 10 13L L 150 Wd 60 Workers receive a job that is values at 90day 60 in wages 30 in benefits Firms are paying 90 per day in employment 60 in wages 30 in benefits Gruber Prior to 78 few plans covered childbirth 197579 23 states passed laws mandating coverage for childbirth 1978 Pregnancy Discrim Act prohibited any differential treatment of pregnancy in employment relationship StateFed law increased cost of health insurance by expanding benefits Research question who pays for the additional benefit Readilyidentifiable beneficiaries Families w workerspouse in childbearing age Easily identifiable group who receive no benefit Single men Older couples past childbearing age Efficiency of group mandates assumes cost shifting via wage Some limits Antidiscrim laws Min wage Work practices unions that make pay uniform If you cannotshift costs may change incentive to hire the group receiving the benefit Experimental Design Differenceindifferenceindifference 1St difference Treatment states before and after intervention Treatment group are people likely impacted by the law married women 2quotd difference Treatment states before and after intervention Control group are people not likely impacted single males and older women Two potential experiments Experiment 1 Treatment states that adopted laws Control those that did nothing Experiment 2 Treatment Federal law Control states that had a statute in place Data May CPS used to identify insurance status Now is done in March Problem Prior to 1978 not all states identified some in state groups Three large states with laws IL NJ NY All other states from same region that can be identified prior to 1978 are in control Controls IL OH and IN NY and NJ MA CT and NC TABLE l THE COST or ADDING MATERNITY BENEFITS TO A HEALTH INSURANCE PACKAGE ercemage of Annual cost Annual cost 1978 Coverage Demographic group 1990 dollars 1973 dollars earnings Family ZUrZQyearold females 984 360 46 39 39 year old females 3756 277 35 Individual 2029year old females 3324 119 15 Individual 30 39 year old females 25 09 Family 20 29yeaerld males 984 360 29 Family 30 39yearold males 756 277 17 DDD Mean Log Hourly Wage Before Treatment Mar Reform 1547 Women 2040 No ref 1369 Contrololder Reform 1759 WPme and No ref 1630 smgle males After 1 513 1 397 AA 1 748 1 627 AA AAA 0034 0028 0062 0011 0003 0008 0054 72 Previous two slides Maternity benefits are 45 of weekly wages for married women lt Wages of this group fell by 56 What does this imply about efficiency of labor market BurkhauserSimon Standard prediction pay or play will reduce wages of newly insured Implicit tax on business of 23hour Problem uninsured concentrated in low wage jobs and wages cannot fall below minimum level What will happen for these workers Current minimum wage Min wages set at the federal level 725 effective July 24 2009 States can raise but not lower WA OR 840 VT 806 lLDC 825 CA 800 W2 W1 W s of Wages workers uninsured 0499 186 415 50724 858 1962 7251024 1961 3649 10251499 2550 2404 15 4445 1570 10000 10000 L L2 L1 77 78 Two groups 25 employee size f If wages are currently below 725 payor W play none of the mandate will be captured lt25 24399 4319 in the form of lower wages 253999 143994 53916 If wages are 725 to 1025 some of the 100499 1536 3984 pay or play mandate cannot be captured in W the form of lower wages assume 10000 10000 300hour cost 79 ED Results 386K employees without insurance will lose their job as a result of pay or play initiative 363K workers employees with insurance from spouse but without EPHI will lose job 11 million will gain insurance cost is roughly 750000 greater unemployed 075 per pt rise in unemployment rate What are the two key assumption 21
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