Wedges, Labor Market Behavior, and Health Insurance Coverage Under the Affordable Care Act | March 2018


The Affordable Care Act’s taxes, subsidies, and regulations significantly alter terms of trade in both goods and factor markets. We use an extended version of the classic Harberger model to predict and quantify consequences of the Affordable Care Act for the incidence of health insurance coverage and patterns of labor usage. If and when the new exchange plans are competitive with employer-sponsored insurance (ESI), our model predicts that more than 22 million people will leave ESI as a consequence of the law. Behavioral changes are expected to add two million participants to the new exchange plans: beyond those that would participate solely as the result of employer decisions to stop offering coverage and beyond those who would have been uninsured. We find large differences in coverage-pattern impacts based on the benefit (including tax incentives) of joining exchange plans and degree to which statutory penalties on individuals and firms are implemented: If exchange plans were not valued while the individual mandate were fully enforced, ESI could potentially even expand.

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Posted on

March 1, 2018

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