HANMING FANG, Duke University - Department of Economics, National Bureau of Economic Research (NBER)
Email: hanming.fang@duke.edu
ALESSANDRO GAVAZZA, Yale School of Management, Yale University - Cowles Foundation
Email: alessandro.gavazza@yale.edu

We investigate how the employment-based health insurance system in the U.S. affects individuals' life-cycle health-care decisions. We take the viewpoint that health is a form of human capital that affects workers' productivities on the job, and derive implications of employees' turnover on the incentives to undertake health investment. Our model suggests that employee turnovers lead to dynamic inefficiencies in health investment, and particularly, it suggests that employment-based health insurance system in the U.S. might lead to an inefficient low level of individual health during individuals' working ages. Moreover, we show that under-investment in health is positively related to the turnover rate of the workers' industry and increases medical expenditure in retirement. We provide empirical evidence for the predictions of the model using two data sets, the Medical Expenditure Panel Survey (MEPS) and the Health and Retirement Study (HRS). In MEPS, we find that employers in industries with high turnover rates are much less likely to offer health insurance to their workers. When employers offer health insurance, the contracts have higher deductibles and employers' contribution to the insurance premium is lower in high turnover industries. Moreover, workers in high turnover industries have lower medical expenditure and undertake less preventive care. In HRS, instead we find that individuals who were employed in high turnover industries have higher medical expenditure when retired. The magnitude of our estimates suggests significant degree of intertemporal inefficiencies in health investment in the U.S. as a result of the employment-based health insurance system. We also evaluate and cast doubt on alternative explanations.

ANGUS DEATON, Princeton University, National Bureau of Economic Research (NBER)
Email: deaton@princeton.edu

During 2006, the Gallup Organization conducted a World Poll that used an identical questionnaire for national samples of adults from 132 countries. I analyze the data on life satisfaction (happiness) and on health satisfaction and look at their relationships with national income, age, and life-expectancy. Average happiness is strongly related to per capita national income; each doubling of income is associated with a near one point increase in life satisfaction on a scale from 0 to 10. Unlike most previous findings, the effect holds across the range of international incomes; if anything, it is slightly stronger among rich countries. Conditional on national income, recent economic growth makes people unhappier, improvements in life-expectancy make them happier, but life-expectancy itself has little effect. Age has an internationally inconsistent relationship with happiness. National income moderates the effects of aging on self-reported health, and the decline in health satisfaction and rise in disability with age are much stronger in poor countries than in rich countries. In line with earlier findings, people in much of Eastern Europe and in the countries of the former Soviet Union are particularly unhappy and particularly dissatisfied with their health, and older people in those countries are much less satisfied with their lives and with their health than are younger people. HIV prevalence in Africa has little effect on Africans' life or health satisfaction; the fraction of Kenyans who are satisfied with their personal health is the same as the fraction of Britons and higher than the fraction of Americans. The US ranks 81st out of 115 countries in the fraction of people who have confidence in their healthcare system, and has a lower score than countries such as India, Iran, Malawi, or Sierra Leone. While the strong relationship between life-satisfaction and income gives some credence to the measures, as do the low levels of life and health satisfaction in Eastern Europe and the countries of the former Soviet Union, the lack of correlations between life and health satisfaction and health measures shows that happiness (or self-reported health) measures cannot be regarded as useful summary indicators of human welfare in international comparisons.

KATHERINE BAICKER, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
Email: KBAICKER@DARTMOUTH.EDU
HELEN LEVY, University of Michigan at Ann Arbor - Institute for Social Research (ISR), National Bureau of Economic Research (NBER)
Email: hlevy@umich.edu

Employer health insurance mandates form the basis of many health care reform proposals. Proponents make the case that they will increase insurance, while opponents raise the concern that low-wage workers will see offsetting reductions in their wages and that in the presence of minimum wage laws some of the lowest wage workers will become unemployed. We construct an estimate of the number of workers whose wages are so close to the minimum wage that they cannot be lowered to absorb the cost of health insurance, using detailed data on wages, health insurance, and demographics from the Current Population Survey. We find that 33 percent of uninsured workers earn within $3 of the minimum wage, putting them at risk of unemployment if their employers were required to offer insurance. Assuming an elasticity of employment with respect to minimum wage increase of -0.10, we estimate that 0.2 percent of all full-time workers and 1.4 percent of uninsured full-time workers would lose their jobs because of a health insurance mandate. Workers who would lose their jobs are disproportionately likely to be high school dropouts, minority, and female. This risk of unemployment should be a crucial component in the evaluation of both the effectiveness and distributional implications of these policies relative to alternatives such as tax credits, Medicaid expansions, and individual mandates, and their broader effects on the well-being of low-wage workers.

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper examines the notion that employers have reached a tipping point over health costs and will cease offering health care benefits to their workers. In the end, an evaluation of recent data does not suggest that the end of employment-based health benefits is upon us. However, the message from some associations representing employers is that the existing employment-based system must be reformed because the status quo is unsustainable. Some individual employers, including leaders in the field, appear to share this new vision. However, many individual employers believe that there is a business case for offering health benefits to their workers, and they continue to invest substantial amounts of money in their health programs. They also tend to agree that if one major employer were to drop health benefits, others would follow. And they tend to agree that public policy changes, such as the erosion or elimination of ERISA (federal) pre-emption of state insurance regulation, could mean the end of voluntary employment-based health benefits.

The first section of this report examines recent trends in health benefits. It then discusses whether employers have reached a tipping point with health benefits. This is followed by a discussion of what is driving employers to a tipping point with respect to retiree health benefits.

MARLEY S. WEISS, University of Maryland - School of Law
Email: mweiss@law.umaryland.edu

The American collective bargaining system is in serious trouble, as is the employee benefits system providing pensions and health care benefits for millions of non-union as well as unionized workers and retirees. The portion of the labor force covered by collective bargaining has dropped so low that one can barely refer to it as a system. Simultaneously, the American private employer-based pension system is moving towards a crisis. Large employers with the finest pension plans, covering thousands of workers and retirees, in industry after industry, are terminating their pension plans, or replacing them with cheaper, weaker retirement programs, often while reorganizing under the American bankruptcy system. Pension benefits upon which retirees and their families have relied are suddenly, often dramatically, cut, as the expense and liability are transferred to the federal government pension benefit guaranty program, a back-up scheme which only covers specified portions of the original benefits. The health care system, too, largely employer-based, is beginning to stagger under the weight of employer reductions in coverage, for retirees as well as employees. These changes are all in the nature of broken promises, whether or not a contract technically has been breached: broken promises to individual workers and retirees, broken promises to trade unions, and on a grand scale, the broken promise of the American social contract.

This paper will sketch out, in comparative perspective, some flaws in American labor law regarding the nature of the collective bargaining agreement (CBA), trade union representation in negotiating and enforcing CBAs, and treatment of long-term benefits promises to employees and retirees. It will suggest that the cumulative effect of these doctrinal contradictions has made possible the thwarting of the bargained-for, relied upon, expectations of workers and retirees, and has led to massive difficulties in the employee benefits system as well as in the collective bargaining regime. These aspects of both collective labor law and employee benefits law must be reconsidered if the system is to function soundly in the future. The American situation also may have implications for the pensions and health care systems of many other countries.

BERTHOLD U. WIGGER, Affiliation Unknown
MARKUS ANLAUF, Affiliation Unknown

Several authors have suggested that consumers purchase too much health insurance in private markets. We readdress this issue within a model that combines excess health-care demand due to health insurance with market power due to monopolistic production of health-care services. We evaluate the market equilibrium in terms of consumer welfare and social welfare. The consumer welfare criterion suggests that in the market equilibrium consumers in fact purchase too much health insurance coverage. The social welfare criterion, in contrast, suggests that because profits of the health-care industry are properly accounted for, consumers should purchase more insurance coverage than they choose to do in the market equilibrium.