Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?

Abstract

The majority of privately insured Americans obtain their health insurance through their own or a family member's employment. The rationale for employers to provide health insurance is straightforward. By pooling the risks of individuals, employers can reduce adverse selection and lower administrative expenses. In addition, they benefit from tax laws allowing businesses to deduct their health insurance costs. These advantages of employer provision, however, must be weighed against the distortions they may generate in individual labor market decisions. In particular, health insurance may distort job mobility if employees decide to keep jobs they would rather leave for fear of losing coverage for preexisting conditions,' a possibility that has been termed job-lock. This paper attempts to quantify the effect of employer-provided health insurance on the labor market mobility of individuals. The link between employer-provided health insurance and