The Determinants of Rising Inequality in Health Insurance and Wages

Abstract

Over the last 30 years in the U.S., less educated workers have experienced a sharp decline in health insurance coverage rate and stagnant wage growth. In contrast, more educated workers' health insurance coverage rate has stayed relatively stable and their wages have rapidly grown. This paper investigates the determinants of the increase in inequality in health insurance coverage and wages by estimating an overlapping generations equilibrium model of labor and health insurance markets' demand and supply. The estimated model is used to quantify the effects of changes in aggregate factors (including rising cost of medical care services, Medicaid eligibility expansion, skill-biased technological changes in the labor market, and changes in the labor force composition) on the inequality of health insurance coverage and wages. I find that the interaction between the rising cost of medical services and labor market technological change is the most important determinant of the widening gap of health insurance coverage.