Does Increased Access to Medicaid Stimulate Job Mobility?

The Issue:

Employer-provided health insurance is by far the largest source of health insurance for Americans. It covers about half of the country's population while the next largest source of health insurance, Medicaid, covers about one-fifth of the population. Does employer-provided health insurance keep workers in jobs they would otherwise choose to leave, just so they can maintain access to health insurance?  If so, this would represent an important restriction in labor markets, keeping workers from moving from job to job, or from changing occupations, in a way that benefits both them and the overall economy.

Employer-provided health insurance can make it more difficult for people to leave jobs, even when these jobs are not a good fit for them, since people may stay employed just to receive that insurance.

The Facts:

• Unlike most other developed countries, health insurance in the United States has been primarily provided and financed by employers. While the passage of the Affordable Care Act (ACA) expanded other forms of coverage, employer-provided health care still represented 49 percent of the population in 2015. The sectors that expanded under the ACA, Medicaid —which covers low-income and disabled people — and the individual markets represented 20 and 7 percent of the population respectively in 2015. The link between employment and health insurance in the United States can have an impact on employment decisions by individuals. Since health care expenditures have grown dramatically in the United States, and the demand for health care is both unpredictable and very variable, the importance of health insurance has grown. And, potentially, so too has the weight that access to health insurance might have on people's labor market decisions.
• Employer-provided health insurance can make it more difficult for people to leave jobs, even when these jobs are not a good fit for them, since people may stay employed just to receive that insurance. This is known as job lock.  Since workers can't typically take their existing coverage with them, factors such as loss of coverage due to a pre-existing condition, the cost of paying for coverage between jobs, and disruption in the continuity of care with their healthcare providers can play a role in the decision of whether to change jobs. The empirical evidence on the extent to which job lock exists is mixed. There is evidence that workers are less likely to change jobs when they or their relatives suffer from chronic illness. Similarly, married men whose wives are pregnant are less likely to change jobs. However, other researchers have found some evidence that people with chronic health problems are not more likely to stay in their jobs. In a related fashion, employment lock occurs when people keep working just to maintain their access to health insurance. Under employment lock, you would expect employment to decrease when there is greater access to insurance outside of work and, conversely, you would expect more people to seek employment as a way to obtain insurance if access to non-employment sources of insurance decreases. There is some empirical evidence that supports the existence of employment lock. For example, there was an increase in employment in Tennessee, as compared to other Southern states, following a large public health disenrollment in that state in 2005. However, another study found no evidence of an employment or earnings effect of access to Medicaid in a randomized experiment of the Oregon Health Insurance system in 2008, but this might be because this experiment occurred in the midst of the Great Recession.
• The flip side of job lock is that those who have access to health insurance outside of their jobs are more likely to move jobs. The evidence of this increased job mobility is fairly consistent. Several studies find that employees who have a spouse with health insurance are more likely to move jobs than those who depend on their own employment for health insurance. The magnitude of this effect varies with different studies finding that access to a spouse’s health insurance is associated with increasing job separations by between 25 percent and 50 percent (for examples of increased job mobility see here, here, here, and here.) Medicaid has also been found to increase job mobility of unmarried women, and of fathers whose children qualified for State Children’s Health Insurance Programs (SCHIP). Similarly, expanding access to health care through the Consolidated Omnibus Reconciliation Act of 1985 (COBRA), that allows unemployed workers to have health insurance coverage from their past employer until they find a new job, resulted in an increase in job separations by 12-15 percent, an increase in non-employment spells by 15 percent.
• If access to health insurance outside of their jobs makes it easier for people to switch jobs, does the greater flexibility result in better jobs? A key element of a healthy labor market is the ability for workers to move across occupations and industries over their working lives. To the extent that having access to health insurance that is not employer-based — such as Medicaid — can reduce job lock, this would make it easier for people to make employment changes that lead to a better match for their skills. In addition, health insurance provides protection from the financial risks that come from being exposed to unexpected health problems. Having this financial protection might make workers more willing to take on other sources of risk — such as the risks involved in making a professional change. The introduction of COBRA, mentioned above, not only increased job separations but also led to a doubling of reemployment earnings. Moreover, in my research with Ammar Farooq, we find that the expansion of Medicaid during the 1990s and 2000s enabled workers to move to new occupations that had higher educational requirements and paid better. States that expanded Medicaid coverage by making it available to people with higher levels of income, saw a higher percentage of workers changing occupations towards better-paid matches (see chart). The figure shows that an increase in the income threshold to qualify for Medicaid benefits from 133 percent of the Federal Poverty Line (FPL) to 300 percent of the FPL increases the likelihood of moving from one occupation to another one by 11 percent, the likelihood of moving to a higher paid occupation by 17 percent and the likelihood of moving to an occupation with higher educational requirements by 12 percentage points.
• Does increased job mobility for workers, who do not rely on employer-provided health insurance, reflect the absence of job lock or just better health (and therefore better employment prospects) for workers? An earlier EconoFact post discusses the strong research evidence showing that access to Medicaid increases people's financial security, even while the evidence of its impact on health is more mixed. Based on this, Medicaid is more likely to help job mobility by providing financial security through the maintenance of health insurance than by improving health outcomes.
• One reason given for the importance of employer-provided health insurance is that other forms of provision may have lower participation rates; everyone who qualifies for Medicaid or COBRA may not apply to get benefits. But the take-up rates of Medicaid are actually quite high. For example, a recent study by the Urban Institute estimates that 85 percent of eligible children participated in Medicaid or SCHIP. Likewise, take up rates among adults range between 52 percent and 81percent (see for instance here and here.)