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An Analysis of the Consequences of Employer Linked Health Insurance Coverage in the United States

Eric P. Slade


In the U.S. labor market it is commonplace to observe individuals for whom job changes have resulted in increases or decreases in health insurance coverage. Simple inspection of the job changes and changes in health insurance coverage experienced by individuals would reveal that individuals commonly experience different types of job and health insurance coverage transitions. Some workers leave jobs that offer health insurance coverage for ones that do not, while other workers leave jobs that do no offer health insurance coverage for ones that do. Some workers work many years in the same job receiving their employer's health insurance coverage plan as a benefit throughout their tenure, while others work many years at the same job only to have their employer's offer of health insurance coverage withdrawn. Still others might be observed to change employers often and never receive health insurance coverage through an employer.

The usual arrangements for health insurance coverage in the U.S. today links health insurance policies to employers. Recently, a few economists have suggested that this arrangement is inefficient, insofar as individuals pass up opportunities to work in preferred jobs due to a fear that their current level of health insurance coverage would be reduced in a new job (e.g. Madrian (1994) and Cooper and Monheit (1993)). These authors term the inefficiency "job-lock", they conclude that employer linked health insurance coverage does substantially reduce the frequency of job changes and that the negative effect of health insurance is stronger for individuals with pre-existing medical conditions. They recommend increased regulation of employer linked health insurance coverage. One set of proposals would prohibit insurance companies from excluding a new employee's pre-existing medical conditions from policy coverage. A second set of proposals would require employers to offer a new employee the option of continuing the same health insurance policy which he had been receiving at his former employer.

This paper analyzes the arguments and evidence presented in existing job-lock studies, and offers new evidence regarding the effect of health insurance coverage on job mobility. It begins with a lengthy critique of existing studies. The second part of the paper presents a new model of job changes and health insurance coverage. The final section reports the results of an empirical analysis based on data from the National Longitudinal Survey of Youth (NLSY).