Productivity Impact of Health Care Reform in California

Today, there are a number of efforts to increase health insurance coverage in the state of California. Initiatives include “pay or pay” policies that would increase work-based coverage, and “single payer” approaches that would entail a complete overhaul of the way health care in financed.

Regardless of the specific vehicle of insuring the uninsured, a large increase in coverage has important benefits. The primary benefit is, of course, the increase in coverage itself, as the uninsured receive better care and are insured against large out-of-pocket expenditures. However, there are also other economic impacts which have important labor market implications. In this research brief, I provide estimates for two sources of productivity gains from an increase in coverage: reduction in “job lock” and increased labor-force participation due to improved health. Although I do not explicitly model this, such productivity gains can partly “pay for” any added costs that are incurred in extending coverage to the uninsured.

Overall, the fear of losing insurance traps a sizeable number of workers in less productive jobs. In 2002, 2.3% of the workforce – or 179,000 workers – with employment based coverage would have made productivity-improving job changes absent job lock. Overall, the presence of job lock annually leads to $772 million in foregone productivity gains.

Health insurance reduces the odds of a experiencing a debilitating health condition which can lead to an exit from the labor force. Bad health outcomes caused by a lack of health insurance means 12,000 less people work each year. Extending coverage to working age adults might increase annual gross state product by $230 million annually.