We construct and test a new model of employer-provided health insurance provision in the presence of adverse selection in the health insurance market. In our model, employers cannot observe the health of their employees, but can decide whether to offer insurance. Employees sort themselves among employers who do and do not offer insurance on the basis of their current health status and the probability distribution over future health status changes. We show that there a pooling equilibrium is more likely when the costs of switching jobs are high or when health status is not persistent. We test and verify some of the key implications of our model using data from the Current Population Survey, linked to information provided by the US Department of Labor about the job-specific human capital requirements of jobs.
Keywords: Affordable Care Act; adverse selection; employee benefits; health insurance; medical spending.