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Labor Market Impact of Massachusetts Health Care Reform: We’ve Only Scratched the Surface

by sinan on June 5th, 2016
Didem Tuzemen

Didem Tuzemen
Federal Reserve Bank of Kansas City

In 2006 Massachusetts implemented a health care reform, which brought major changes to the health care system in the state. The main goal of the reform was to provide easier access to health insurance and lower the uninsured rate in the state. Cited as the blueprint for the Patient Protection and Affordable Care Act (the ACA), the Massachusetts Health Reform Act’s key components were a state health insurance exchange, an individual mandate, an employer mandate, and expansions to public health insurance programs.

First, the reform required formation of a health insurance exchange, called the Connector, which allowed individuals to shop online for health insurance that met the minimum requirements dictated by the Act. The Connector offered both subsidized and non-subsidized plans, expanding access to health insurance. Individuals with incomes below 300 percent of the Federal Poverty Level (FPL) were offered health insurance subsidies1. Individuals with incomes below 150 percent of the FPL were offered fully subsidized health insurance. Subsidized insurance options were offered through the Commonwealth Care Health Insurance Program, while non-subsidized insurance plans were offered through the Commonwealth Choice Health Insurance Program.

Second, an individual mandate required all residents of the state to obtain some form of health insurance or pay a penalty of up to 50 percent of the lowest-cost premium they would have qualified for at the Connector. There were no penalties for individuals with incomes up to 150 percent of the FLP, but for the rest of the individuals, penalties were indexed to their incomes.

Third, an employer mandate required employers with more than 10 employees to provide health insurance to their employees and contribute to the premium costs, or pay a penalty (Employer Fair Share Contribution) of up to $295 per employee.

Lastly, Massachusetts expanded MassHealth (a program that combines Medicaid and CHIP) enrollment. Medicaid was expanded to cover individuals living with HIV/AIDS, adults and children with disabilities, and the long-term unemployed. The eligibility cap for CHIP was also raised, from 200 percent to 300 percent of the FPL.

Empirical evidence shows that the reform was successful in lowering the uninsured rate in Massachusetts (Long, Stockley and Yemane, 2009; Kolstad and Kowalski, 2012; Niu, 2014; Becker and Tuzemen, 2015). The uninsured rate in the state dropped from 13.6 percent in 2006 to 5.1 percent by 2012, due to increased enrollment in both private health insurance and Medicaid. For comparison, during the same time the average uninsured rate in other Northeastern states increased by 0.3 percentage points to 14.3 percent, and the uninsured rate in the U.S. increased from 17.9 percent in 2006 to 18.6 percent in 2012 (Becker and Tuzemen, 2015)2

In addition to lowering the uninsured rate in the state, the reform led to improvements in hospital and preventive care. A study reports that the reform decreased the length of hospital stays and the number of inpatient admissions originating from emergency room, while also reducing hospitalizations for preventable conditions (Kolstad and Kowalski, 2012). Another study showed, after the implementation of the reform, emergency room usage declined due to reductions in non-urgent visits (Miller, 2012).

While the effect of the health care reform on Massachusetts’ uninsured rate has been widely documented, there have been only limited attempts to study the impact of the reform on the labor market. It is well know that a majority of workers in the nation obtain health insurance through their employers, pointing to an established strong link between paid-employment and access to health insurance. Some economists have argued that the association between employment and health insurance access prevents individuals from changing employers, commonly referred as “job-lock” (Madrian, 1994; Gruber and Madrian, 1994). Others have argued that access to health insurance is closely linked to individuals’ decisions to become or remain self-employed; however, there are mixed results in this literature (Holtz-Eakin et al., 1996; Wellington, 2001; DeCicca, 2010; Fairlie et al., 2011).

The changes stipulated by the Massachusetts health care reform seem to have severed the traditional link between paid-employment and health insurance by easing access to health insurance. As a result, has job mobility increased in the state? Using information from the tax returns for 2002-2010, a recent study reports that the reform in Massachusetts has actually led to an overall decrease in job separations, driven by declines in job-to-job transitions (Heim and Lurie, 2015). However, there is evidence of increased job mobility among married young workers and low-income taxpayers.

Turning to self-employment, the health care reform in Massachusetts could have influenced individuals’ decisions to remain or become self-employed in two opposing ways. On the one hand, the reform could have removed a barrier to self-employment by reducing individuals’ reliance on their employers for health insurance. On the other hand, the reform could have led to a decline in self-employment as the mandates increased the cost of doing business for the previously uninsured self-employed. There are mixed results on this issue. Studies based on data from the Current Population Survey find that the reform was associated with an increase in the likelihood of self-employment (Niu, 2014; Becker and Tuzemen, 2015). However, studying tax returns for 1999-2010, another study concluded that the reform actually led to a decline in the rate of taxpayers earning a majority of income from self-employment; however, the propensity to earn self-employment income rose among joint filers and the propensity to earn the majority of income from self-employment rose among older taxpayers as a result of the reform (Heim and Lurie, 2014).

Many interesting questions remain to be tackled. There have been concerns following the reform in Massachusetts that there can be reductions in both labor supply and labor demand. Did some individuals stop working or reduce their labor supply when access to health insurance was no longer tied to employment? Did some firms reduce employment or cut back hours to avoid the requirements of the employer mandate? There is need for further empirical studies to improve our understanding about the consequences of the reform on the demand and supply of labor in Massachusetts.

All in all, limited research shows that the health care reform in Massachusetts has lowered the uninsured rate in the state and had some impact on job mobility and self-employment. More research is needed to shed light on the labor market impact of the Massachusetts health care reform. Given the similarities between the health care reform in Massachusetts and the ACA, studying Massachusetts’s experience offers valuable insights into the ACA’s implications for the insurance and labor markets in the nation.

Notes

1In 2007, the FPL was $10,210 for an individual and $20,650 for a family of four.

2 These Northeastern states consist of Vermont, Rhode Island, New Hampshire, Connecticut, Maine, New York, New Jersey, and Pennsylvania.

References

Becker, Thealexa, and Didem Tuzemen. 2015. “Self-Employment and Health Care Reform: Evidence from Massachusetts.” FRB Kansas City Research Working Paper No: 14-16.

DeCicca, Philip. 2010. “Health Insurance Availability and Entrepreneurship.” Upjohn Institute Working Paper No: 10-167.

Fairlie, Robert W., Kanika Kapur, and Susan Gates. 2011. “Is Employer-Based Health Insurance a Barrier to Entrepreneurship?” Journal of Health Economics, 30(1): 146–162.

Gruber, Jonathan, and Brigitte C. Madrian. 1994. “Health Insurance and Job Mobility: The Effects of Public Policy on Job-Lock.” ILR Review, 48(1): 86-102.

Heim, Bradley T., and Ithai Z. Lurie. 2015. “Does Health Reform Lead to Increased Job Mobility? Evidence from Massachusetts.” American Journal of Health Economics, 1(3): 374-398.

Heim, Bradley T., and Ithai Z. Lurie. 2014. “Does Health Reform Affect Self-Employment? Evidence from Massachusetts.” Small Business Economics, 43(4): 917-930.

Holtz-Eakin, Douglas, John R. Penrod, and Harvey S. Rosen. 1996. “Health Insurance and the Supply of Entrepreneurs.” Journal of Public Economics, 62(1): 209-235.

Kolstad, Jonathan T., and Amanda E. Kowalski. 2012. “The Impact of Health Care Reform on Hospital and Preventative Care: Evidence from Massachusetts.” Journal of Public Economics, 96: 909–929.

Long, Sharon K., Karen Stockley, and Alshadye Yemane. 2009. “Another Look at the Impacts of Health Reform in Massachusetts: Evidence Using New Data and a Stronger Model.” American Economic Review: Papers & Proceedings, 99(2): 508–511.

Madrian, Brigitte C. 1994. “Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?” The Quarterly Journal of Economics, 109(1): 27–51.

Miller, Sarah. (2012). “The Effect of Insurance on Emergency Room Visits: An Analysis of the 2006 Massachusetts Health Reform.” Journal of Public Economics, 96(11): 893-908.

Niu, Xiaotong. 2014. “Health Insurance and Self-Employment Evidence from Massachusetts.” ILR Review, 67(4): 1235-1273.

Wellington, Alison J. 2001. “Health Insurance Coverage and Entrepreneurship.” Contemporary Economic Policy, 19(4): 465–478.

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