Question

Explain in words and graphs, how do health insurance mandates impact the market for employment when:

a) Employees value (benefit) mandates equal to the cost of mandates

b) Employees value (benefit) mandates less than the cost of mandates

Answer 1

In order to expand coverage of health insurance , policy makers have devised an alternative approach of employer health insurance mandate.Direct evidence regarding the effects of Employer Sponsored Insurance mandate is less.In 1989, Summers depicted the effects on labor market of the Employer sponsored Insurance mandate.Insurance mandate causes the labor demand curve to shift backwards and the labor supply curve to shift outward.This causes wages to fall.The amount of wage change and the effects of this on hours and employment will depend on workers valuation of the benefit in comparison to employers cost of the provision.

a)If there is no existing market failure, the benefit will automatically go to the workers and the benefit will be more than the cost of the employer.Therefore such workers will not be affected by the mandate. Instead the effect of the mandate will be on workers whose wage is close to the minimum wage and so cannot be reduced to counterbalance the cost of the benefit.Therefore the effect of the mandate on Employer Sponsored insurance will be more for low wage workers as well as for low skilled workers.,

b) .The most important effect will be on workers who would not receive the benefit of the mandate as the benefit of the mandate is less than the cost of the mandate.Thus for workers most affected by the mandate , if the value of ESI is less than he cost , wage reduction which will arise from market adjustment to the mandate will be less than the cost.Thus the labor cost rises and so employers will reduce employment of covered workers