Dr. Jennifer Platania, assistant professor of economics, was invited to present her research paper “The Output Effects of Employer-Based Health Insurance (co-authored with Stephen DeLoach, associate professor of economics) at the Atlanta Federal Reserve Bank. On Monday, Dr. Platania presented this paper as part of the Bank’s macroeconomic research seminar series. An abstract is attached below.
ABSTRACT: Employer-financed health insurance systems, like that used in the United States, distort firms’ labor demand and adversely affect the economy. Since such costs vary with employment rather than hours worked, firms have an incentive to increase output by increasing worker hours rather than employment. Given that the returns to employment exceed the returns to hours worked, this results in lower levels of employment and output. In this paper we construct a heterogeneous agent general equilibrium model where individuals differ with respect to their productivity and employment opportunities. Calibrating the model to the U.S. economy, we generate steady state results for two models; one in which health insurance is financed primarily through employer contributions that vary with employment, and a second where insurance is funded through a non-distortionary, lump-sum tax. This allows us to estimate the effect of employer-based health insurance on output, employment, hours worked and inequality.