Cross-subsidization in the market for employment-related health insurance

This paper uses data from the 1987 National Medical Expenditure Survey to e xamine the nature of equilibrium in the market for employment-related healt h insurance. We examine coverage generosity, premiums, and insurance benefi ts net of expenditures on premiums, showing that despite a degree of market segmentation, there was a substantial amount of pooling of heterogeneous r isks in 1987 among households with employment-related coverage. Our results are largely invariant to (i) firm size and (ii) whether or not employers o ffer a choice among plans. Our results suggest the need for caution concern ing incremental reforms that would weaken the link between employment and i nsurance without substituting alternative institutions for the pooling of r isks. Published in 2000 by John Wiley & Sons, Ltd.