Employer‐provided Health Insurance and Job Change

I. INTRODUCTION The fact that employers are the primary providers of health insurance in the United States raises at least two concerns. First, people who lose their jobs may also lose coverage. Second, some people who would prefer to leave their current job may remain to avoid losing health benefits. The latter drawback has been dubbed 'joblock,' and it can distort the efficient operation of labor markets. A 1991 New York Times article reported poll results suggesting that approximately 3 in 10 American households had someone remain in a job that they would like to leave because of health benefits. Economists have produced a handful of studies attempting to detect job lock using nationally representative data and have not arrived at a consensus. The appropriateness of the data used is partly to blame. First, there may be a lack of power inherent in some of the job lock tests that is perhaps attributable to small sample sizes. Some estimates imply a rather high degree of job lock, but the imprecise measurement of the effects has led to conclusions that there is weak statistical evidence of job lock. Second, job lock may have changed over time. For example, the escalation in the cost of health insurance in the late 1980s and early 1990s may have increased job lock. Cost increases were moderate throughout the midto late 1990s (Krueger and Levy, 1997), they are still higher than they were during the mid-1980s. Most studies use data from the 1980s, and the failure of many of them to detect job lock may have something to do with the time period studied. On the other hand, several policies passed at the federal and state level may have reduced job lock. The most well-known policy responses to job lock have been the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). COBRA mandated that employers must offer former workers that were covered by health insurance the option to buy insurance at a premium equal to 102% of the employer's average cost of providing insurance for the 18 months following separation. HIPAA required insurers to renew coverage once COBRA eligibility expires. Moreover, it prevented insurance companies from excluding preexisting medical conditions from coverage (Madrian, 1998). Despite these government interventions, some still think that they are trapped in their jobs because of health insurance. According to a 1998 Employee Benefit Research Institute poll, 27% of American adults reported that they or a member of their family are job-locked (Los Angeles Times, 30 August 1998). In either case, more updated evidence is needed. In this article, evidence on the effect of health insurance on job mobility using data from the March 1988-March 2000 Current Population Survey (CPS) is presented. The CPS is a large data set, sampling about 52,000 households each March. Thus the potential problems of timing and precision can be dealt with by using this data set. II. DETECTING JOB LOCK A. Basic Concepts If health plans are not equal across jobs and additional wages do not fully compensate for the differences, people may remain at their current job even if another job would be a better match. If some of these individuals would have separated from their employer had health insurance been completely portable, job lock arises. There may be many differences in health plans between one's current job and an alternative job, including the mere existence of a plan. Even if insurance is offered on the alternative job, some individuals with preexisting conditions are less likely to be among those receiving the offer. Similarly, those with large families may not be offered equivalent family coverage. Although portability legislation like HIPAA should reduce these cases, there are still other differences in health plans, such as higher premiums or the inability to maintain the same family doctor (among other subtle differences). …