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Contact Us Fall 2000; Volume 1, Number 1
In Focus

Understanding Trends in Employment-based Health Insurance Coverage (cont.)
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Furthermore, the mechanisms by which crowdout may occur are not well understood. Shore-Sheppard et al. (2000) investigate whether the likelihood of a firm offering insurance is related to the share of firm employees or their dependents who are eligible for Medicaid. The results suggest that Medicaid is not a significant determinant of employers offering health insurance, and that the primary way Medicaid expansions reduced private coverage was through employee takeup of coverage. This effect was concentrated among workers in firms that had to pay toward the premium (Shore-Sheppard et al., 2000). Crowd out may also reflect reliance on safety net institutions as a substitute for insurance, whether by employers not offering coverage or employees not taking up coverage. Some evidence suggests, for example, that for people with low incomes, the likelihood of having private coverage is lower, and of being uninsured is higher, in areas with (as opposed to without) a public hospital (Rask and Rask 2000). Together, these results suggest that the cost of health insurance may be a factor in coverage rates, particularly among people with low incomes. In fact, increases in health insurance premium costs are commonly cited as the major explanation for health insurance declines (Currie and Yelowitz 1999; Kronick and Gilmer 1999; ACS 1995; Gabel 1999), particularly in the context of declines in real wages.4 For example, Gabel (1999) identifies three main underlying factors in declines in employment-based coverage from 1977 to 1998: 1) decline in real wages among low skill workers; 2) a 2.6 fold increase in insurance costs and 3) a 3.6 fold increase in workers contributions for coverage. The effect of premium costs on coverage rates has attracted attention in policy debates in the context of potential effects of consumer protections legislation on premium costs and coverage rates (see, e.g., CBO, 1999; GAO, 1999). Despite the importance of this question, research on the relationship between premium increases and coverage levels is at a relatively early stage.

Kronick and Gilmer (1999) find that the bulk of the decline in employer coverage between 1979 and 1995 can be attributed to the increase in health care expenditures relative to personal income. Due to lack of data on health insurance premiums, this analysis relies on a single estimate of per capita spending per year, which the authors acknowledge is a limited measure upon which to base these calculations. Currie and Yelowitz (1999) attempt to investigate the effects of health insurance premium costs on coverage rates across states but, due to limited premium data, are not able to conclusively identify an effect. Finally, in a report for the AFL-CIO, the Lewin Group (1999) found that real increases in premium costs and increases in employee contributions explain three quarters of the decline in employment-based insurance among workers and dependents between 1988 and 1996, adjusting for industry and demographic shifts, income, and Medicaid expansions. However, this analysis relies on imputed data for premium information, analyzes the CPS across a period in which the CPS was modified, and does not control for changes in labor force participation or changes in the economy. Thus, though the evidence is suggestive, a clear link between premium costs and coverage rates is difficult to establish.

Although employers did not reduce offer rates for most workers, they responded to premium increases in other ways that led to reduced employee coverage rates. Employers have increased employees' share of premium contributions for workers and/or dependents or dropped dependent coverage, shifted to a more managed health plan, reduced plan choices, and reduced eligibility for some workers (GAO, 1997; Rice et al., 1998; O'Brien and Feder 1999). A multivariate analysis comparing firms with high, medium and low premium increases provides some evidence that firms with high increases are more likely than other firms to drop conventional coverage, reduce eligibility for part-time workers, and reduce the market share of the high cost plan within the firm, but were not more likely to increase deductibles or copayments (Rice et al., 1998). O'Brien and Feder (1999), in a literature review, conclude that employer efforts at "cost containment," including eligibility restrictions and increased employee premium contributions, are a main explanation for the declines in employment-based coverage.

Indeed, in the context of increases in the share of premiums paid by employees, and trends toward more managed coverage, employee takeup has been declining. Declines in takeup may reflect a rational decision by employees to forego health insurance in response to increased employee premium contributions, particularly among those who are lower income—despite the potential financial and health consequences that lack of insurance poses (Donelan et al., 1997; Hoffman, 1998). In fact, increases in contribution requirements may fall particularly heavily on low-wage workers. The models developed by Levy (1999) and Dranove et al. (2000) suggest that premium contribution requirements are more likely for workers of lower tax rates (although these workers are least able to afford this cost).

The current literature on the relationship between premium increases and coverage rates faces limitations that highlight the need for further research. First, limited data are available that track premium costs over time, particularly in a way that reflects a standard (comparable) benefit package. Also, there is a need for additional studies that assess possible reasons for coverage declines while controlling for structural changes in the economy and the business cycle. Furthermore, the explanation of premium increases as a cause of coverage declines is not consistent with economic theory. In theory, people's demand for the protection afforded by insurance would increase as medical spending increases, assuming the care is of value, because the financial risk of being uninsured has become larger (Cutler and Zeckhauser 1999). While it appears that affordability considerations have prevented such a response, further investigation is needed to pinpoint the relationship between health insurance premium cost increases (or decreases) and coverage rates among workers of various income levels.

Conclusion
This paper has shown that while employment-based coverage has declined between the 1980s and 1990s, within the latter half of the 1990s there is some evidence that employment-based coverage has increased. Explanations including labor market factors such as industry shifts and increased reliance on part-time workers, or crowdout due to public insurance expansions have been shown to contribute relatively little to the decline in employment-based coverage between the 1980s and 1990s. Instead, the literature shows that factors such as rising health insurance premiums and stagnating wages are the main explanations for the decline in coverage. Further work is needed to better understand this relationship and to document and explain the change in trends in the latter half of the 1990s, as this was a period characterized by rapid economic growth and several years of uncharacteristically low growth in premiums. This understanding will be particularly valuable since premium costs again appear to be on the rise. A richer understanding of the trends in employment-based coverage, as it is the predominant source of coverage for the non-elderly, will also further understanding of trends in the share of the population that is uninsured. In particular, it will provide information to assess which approaches to reduce the number of uninsured, whether public or private, may be most effective at reaching particular groups.


Endnotes
I would like to thank Ellen O'Brien for helpful suggestions and David Cutler and Kathy Swartz for helpful conversations and comments on earlier drafts of this paper.

1 See Cooper and Schone, 1997; Kronick 1999; Currie and Yelowitz 1999; Holahan 1999; Farber and Levy, 2000; GAO, 1997; Carrasquillo et al., 1999; Fronstin and Snider, 1996; Acs, 1995.

2 Fronstin (1999) finds that offer rates decreased by 1 percentage point over the same time period.

3 From 1979 to 1987, real earnings growth declined by 15 percent for the 10th percentile of earnings, declined slightly at the median, and increased by approximately 5 percent at the 90th percentile of the distribution. In contrast, trends from 1989 to 1997 show evidence of a "sagging middle," with a roughly 5 percent decrease at the median, but small increases at the 10th and 90th percentiles (Wilson, 2000, from Krueger, 1997).

4 The National Health Expenditures show double digit average annual increases in premium costs in 1970, 1980, and 1990. Average annual increases dropped below 4 percent in 1995 through 1997, but rose to 8.2 percent in 1998 (Levit et al., 2000). Furthermore, the share of employees enrolled in employer sponsored health plans that are fully paid for by the employer has declined since 1980, from 49 percent to 33 percent of single enrollees and from 44 percent to 26 percent of enrollees with family coverage (Levy, 1999).

References
Acs, G. 1995. Explaining Trends in Health Insurance Coverage Between 1988 and 1991. Inquiry (Spring 1995): 102-110.

Congressional Budget Office. 1999. Health Care Costs and Insurance Coverage. Statement of Dan L. Crippen before the Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, June 11, 1999.

Cooper, P.F., and Schone, B.S. 1997. More Offers, Fewer Takers for Employment-Based Health Insurance: 1987 and 1996. Health Affairs (November/ December): 142-149.

Currie J. and Yelowitz A. 1999. Health Insurance and Less Skilled Workers. National Bureau of Economic Research Working Paper 7291.

Cutler D.M. and Gruber J. 1996. Does Public Insurance Crowd Out Private Insurance? Quarterly Journal of Economics 111(2):391-430.

Cutler D.M. and Zeckhauser R.J. 1999. The Anatomy of Health Insurance. NBER Working Paper Series, Working Paper #7176.

Donelan K., Blendon R., Hill C., and Hoffman C. 1996. Whatever Happened to the Health Insurance Crisis in the United States? JAMA 276(16): 1346-50.

Dranove D., Spier K.E., and Baker L. 2000. "Competition" Among Employers Offering Health Insurance. Journal of Health Economics 19(1):121-140.

Farber H.S. and Levy H. 2000. Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse? Journal of Health Economics 19(1):93-119.

Fronstin P. 2000. Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 1999 Current Population Survey. EBRI Issue Brief Number 217. Washington DC: the Employee Benefit Research Institute.

———. 1999. Employment-Based Health Benefits: Who is Offered Coverage vs. Who Takes It. EBRI Issue Brief Number 213. Washington DC: the Employee Benefit Research Institute.

Fronstin P., and Snider S.C. 1996. An Examination of the Decline in Employment-Based Health Insurance Between 1988 and 1993. Inquiry (Winter 1996/1997): 317-325.

Gabel J. 1999. Job-Based Health Insurance, 1977-1998: The Accidental System Under Scrutiny. Health Affairs 18(6):62-74.

GAO. 1999. Private Health Insurance: Impact of Premium Increases on Number of Covered Individuals is Uncertain. GAO/T-HEHS-99-147.

GAO. 1997. Employment-Based Health Insurance: Costs Increase and Family Coverage Decreases. GAO/HEHS-97-35.

Hoffman C. 1998. Uninsured in America: A Chartbook. Washington DC: The Kaiser Commission on Medicaid and the Uninsured.

Holahan J. and Kim J. 2000. Why Does the Number of Uninsured Americans Continue to Grow? Health Affairs 19(4):188-196.

Holahan J., Winterbottom C. and Rajan S. 1995. A Shifting Picture of Health Insurance Coverage. Health Affairs 14(4): 253-264.

Kronick R. 1999. Explaining the Decline in Health Insurance Coverage, 1979-1995. Health Affairs 18(2): 30-47.

Levit K., Cowan C., Lazenby H. et al. 2000. Health Spending in 1998: Signals of Change Health Affairs 19(1): 124-132.

Levy, H. 1999. Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums. Unpublished manuscript.

Long S.H. and Marquis M.S. 1999. Stability and Variation in Employment-Based Health Insurance Coverage, 1993-1997. Health Affairs 18(6):133-139.

Long, S.H. and Rodgers, J. 1995. Do Shifts Toward Service Industries, Part-time Work, and Self Employment Explain the Rising Uninsured Rate? Inquiry (Spring 1995): 111-116.

Monheit A. and Steinberg Schone B. 2000. Assessing the Decline in Employment-Based Health Insurance: An Analysis of Low Wage Workers. Unpublished AHRQ manuscript.

O'Brien E. and Feder J. 1999. Employment-Based Health Insurance Coverage and Its Decline: The Growing Plight of Low-Wage Workers. Washington DC: Kaiser Commission on Medicaid and the Uninsured.

———. 1998. How Well Does the Employment-based Health Insurance System Work for Low-Income Families? Washington DC: Kaiser Commission on Medicaid and the Uninsured.

Rice, T., Gabel, J., et al. 1998 Trends in Job-Based Health Insurance Coverage. Policy Report, UCLA Center for Health Policy Research.

Shore-Sheppard L., Buchmueller T.C., and Jensen G.A. 2000. Medicaid and Crowding Out of Private Insurance: A Re-examination Using Firm Level Data. Journal of Health Economics 19(1):61-91.

Swartz K. 1997. Changes in the 1995 Current Population Survey and Estimates of Health Insurance Coverage. Inquiry 34 (Spring 1997): 70-79.

Wilson W.J. 2000. Rising Inequality and the Case for Coalition Politics. Annals of the American Academy of Political and Social Science Mar: 78-99.

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Patricia Keenan is a doctoral candidate in the Political Analysis track of the Ph.D. Program in Health Policy at Harvard University.

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