Health Insurance and the Labor Market Essay

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While discussing the development of the health insurance market, it is important to note that it develops actively, but there are many challenges associated with the selection procedure. Such challenges as information asymmetry and the use of community ratings can lead to adverse selection, and finally, to the markets’ collapse (Finkelstein & McGarry, 2006, p. 938). To understand the implications of the adverse selection, it is important to focus on the aspects of the issue.

Information asymmetry occurs when insurers and insured persons have different information and data about the person’s health state. Thus, insurers select clients with significant health problems. Community rating is typical for the insurance market when insurers choose or have to rate all the community members equally (Hicks, 2014, p. 284-285; Kaestner & Simon, 2002, p. 136).

The adverse selection is often the result of using both techniques. As a result, the adverse selection leads to the insurance company’s collapse because ill persons are rated as healthy persons and the risks of insurance companies’ bankruptcy increase.

Focusing on the labor market models, it is necessary to state that analysts rely on several approaches to using a model of the labor market to state and explain the employees’ wages. Shifts in the wage are closely connected with shifts in the labor supply curve. To explain changes in the wage and the associated employment figures, analysts can refer to the curves to state the potential changes in the market (Hicks, 2014, p. 305-312).

The positive relationship between the wage and labor time is observed when the wage of employees increases in association with the increases in the labor hours. Within the competitive market, any positive change in the number of firms and labor hours results in increasing wages (Hicks, 2014, p. 305-308).

The reference to the model of the labor market is also necessary during the discussion of hiring another employee (Culyer, 2014, p. 114). While changing the distribution of the number of labor hours among employees and the size of the wage, it is possible to affect the firm’s profitability and competitive advantage.

It is important to note that the workers’ compensation also depends on the health status. In the healthcare industry, the compensation package consists of two parts wage and benefits in the form of health insurance. While concentrating on the model of the competitive labor market, it is necessary to state that employers refer to the employees’ health status because it can influence productivity.

In the context of the competitive labor market model, the poor health of an employee leads to reduced productivity and reduced quantity of labor (Culyer, 2014, p. 112). As a result, the overall compensation is also decreased. However, the wages in the whole market can increase if the competition grows (Hicks, 2014, p. 305-308).

Even though employees should be provided with equal health insurance and an adequate wage, productivity, as associated with the health status, is the main factor to affects the size of the received compensation. Moreover, it is possible to make decisions about the size of compensation with references to the wage rates to balance the overall size of the compensation provided to the employee and respond to the principle of the labor supply curve.

References

Culyer, A. (2014). Encyclopedia of health economics. New York, NY: Newnes.

Finkelstein, A., & McGarry, K. (2006). Multiple dimensions of private information: evidence from the long-term care insurance market. American Economic Review, 96(4), 938-958.

Hicks, L., (2014). Economics of health and medical care. Burlington, MA: Jones & Bartlett Learning, LLC.

Kaestner, R., & Simon, K. (2002). Labor market consequences of state health insurance reforms. Industrial Labor Relations Review, 56(1), 136-160.

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