Most studies on income inequality have focused on wage earnings inequality, but the usefulness of this approach is limited, some scholars say. What’s missing is the role of non-wage compensation, such as health insurance on the level and distribution of income.
A 2010 Cornell University study done for the National Bureau of Economic Research, “Measuring the Impact of Health Insurance on Levels and Trends in Inequality,” expands the measure of income to consider the effect of different types of health insurance on levels and trends in income inequality. This approach enables a more holistic comparison of inequality and facilitates the analysis of prospective effects of health insurance expansion on societal welfare.
The paper’s key findings include:
- Measures of income inequality decrease when the value of employer health insurance payments is added to income.
- The effect on narrowing income inequality is even greater when the value of government-provided health insurance such as Medicare and Medicaid is included in the measure of income.
- The recently approved expansion in health insurance access should increase the full income measure of a household in the lowest deciles of the income distribution by 8.3%. This corresponds to a reduction in income inequality by about 1%.
The authors conclude that health insurance should be included in measures of the level and distribution of economic well-being in future policy discussions.