Based on published estimates of its price elasticity of demand and of tax wedges, as well as the method of revealed preference, I estimate that the annual social value of ESI is about $1.5 trillion beyond what policyholders, their employers, and taxpayers pay for it. The private component of that value, which in some respects is the other side of “job lock,” derives in part from group plans, with the group determined by many characteristics other than the demand for healthcare. With voluntary groups formed this way, adverse risk selection is reduced, the groups can be effective at obtaining substantial discounts and rebates for their members, and division of labor employed in shopping for health providers. ESI is also a mechanism for employers to act on their incentives for a healthy and productive workforce. External effects include tax externalities (in both directions), encouraging work, and easing government expenditure obligations by helping to prevent people from going without health insurance.

More on this topic

BFI Working Paper·Jul 8, 2024

Who Pays for Rising Health Care Prices? Evidence from Hospital Mergers

Zarek Brot-Goldberg, Zack Cooper, Stuart V. Craig, Lev R. Klarnet, Ithai Lurie and Corbin L. Miller
Topics: Health care
BFI Working Paper·May 13, 2024

Is There Too Little Antitrust Enforcement in the US Hospital Sector?

Zarek Brot-Goldberg, Zack Cooper, Stuart V. Craig and Lev Klarnet
Topics: Health care
BFI Working Paper·Mar 4, 2024

Evaluating and Pricing Health Insurance in Lower-Income Countries: A Field Experiment in India

Anup Malani, Cynthia Kinnan, Gabriella Conti, Kosuke Imai, Morgen Miller, Shailender Swaminathan, Alessandra Voena and Bartek Woda
Topics: Health care