Faculty seminar with Vegard Nygaard

Welcome to seminar with Vegard Nygaard from University of Houston

Homepage to Vegard Nygaard here

Title of talk: 

«The impact of U.S. employer-sponsored insurance in the 20th century».

Abstract:  

The introduction of employer-sponsored insurance (ESI) in the 1940s led to the

largest decline in the uninsurance rate in U.S. history. To study the fiscal and

welfare implications of this insurance expansion, we endogenize the selection of

workers into jobs with and without ESI in a general equilibrium life-cycle model

where consumers face idiosyncratic health shocks. Our model rationalizes non-

targeted empirical patterns related to ESI coverage between 1940 and 2010 and

in recent cross-sectional data. ESI leads to moderate welfare gains in the short

run (0.5 percent of lifetime consumption for the average consumer) but zero gains

or even moderate losses in the long run. The reason is that the health insurance

benefit provided by ESI dominates in the short run but the tax increase required to

offset ESI tax exemptions dominates in the long run. We substantiate these welfare

estimates by showing that our model rationalizes both the level and rise in total ESI

tax exemptions. Finally, we show that tax-financed universal health insurance—

considered among policymakers in the 1930s—would have led to significantly higher

welfare gains.