State health reform: effects on labor markets and economic activity

Individual states are actively weighing health care reform proposals and their potential impacts on many levels, including states' own economies. This article considers the effects on state economies of two instruments of health reform: employer mandates and cost containment. The literature suggests that an employer mandate will reduce employees' wages in the long run. In the short run, however, to compensate for the costs associated with mandated health care insurance for their employees, firms may raise their prices to consumers, reduce the number of employees, or allow a drop in profit margins. By increasing health care spending and the number of insured persons, mandates would also increase states' levels of economic activity. Though cost containment may dampen the stimulative effects of expanded coverage, resources not spent on health care as a result of effective cost containment might be redistributed to other sectors in a state's economy.