Yesterday, the CBO released a report titled Effects of Changes to the Health Insurance System on Labor Markets, which also refers to the impact of employer-based health insurance on the ability of individuals to maximize their skills and opportunities.
Some of the same advantages of employment-based health insurance that may keep more people in the labor force can also cause people to decide to work (or stay) at firms that offer health insurance rather than take a job that better matches their skills and interests but does not offer health insurance. In addition, those who have medical problems (or have family members with medical problems) have an incentive to stay in a job that provides health insurance in order to cover those preexisting conditions, even if more productive opportunities exist elsewhere — a phenomenon known as “job lock.” (Those opportunities could include working for a different employer or becoming an entrepreneur.)
The report cautions, however, that the evidence is mixed regarding the impact of employer-sponsored insurance on job turnover. Another conclusion of the report: “Workers whose health insurance will cover them in retirement tend to retire earlier, on average, than those without such benefits.” The report also argues that the impact of employer-sponsored health insurance on U.S. competitiveness is overstated.
Some analysts have argued that domestic firms offering health insurance to their workers face higher costs for compensation than do competitors based in countries where insurance is not related to employment and that fundamental changes to the health insurance system could reduce or eliminate that disadvantage. However, such a cost reduction is unlikely to occur, except in the short run, primarily because the costs of fringe benefits are largely borne by workers in the form of lower cash wages. Other economic factors (including tax rates and currency values) are likely to have a larger impact on a nation’s competitiveness in the world market.