On the decline of employment-based health insurance in the US

Many recent papers have documented that there has been a steady decline in the fraction of workers in the US who receive health insurance through their employer. This paper presents an economic model of the labour market that is consistent with observed trends. The primary finding is that the trend is explained by a change in optimal compensation structures for workers due to the increase in the relative price of health care. The paper concludes with an application to the analysis of the increased prevalence of capitated contracts among employers.