Health Insurance Coverage in the United States

Health Insurance Coverage in the United States

by: Carola Cowan, Economist, and Sara Saulcy, Economist

"The number of uninsured grows by 1.2 million for every one percentage point increase in the unemployment rate."

In 2002 the Economic Report of the President devoted over 40 pages to the issue of health insurance coverage and costs.1 The report finds health care, one of the largest sectors of the American economy, representing 13.4 percent of the United States’ Gross Domestic Product (GDP). Health care spending is forecasted to rise to 15.9 percent of the GDP by 2010. Over the long term, it will become even more predominant in the economy, continuing a 60-year economic trend and reaching as much as 38 percent of GDP under conservative assumptions.

This article explores the current level of health insurance coverage for the population of the United States, and the reasons why employees decline to participate in employer-sponsored health insurance plans. We also examine factors that contribute to employer decisions about whether or not to offer their employees health insurance coverage.

Health Insurance Coverage

The U.S. Census Bureau has included questions about health insurance coverage in their Current Population Survey (CPS) since 1980. Originally questions were asked about health insurance to supplement the cash income questions with a set of questions on non-cash benefits (e.g., food stamps, subsidized housing, medical assistance). Since most major types of health insurance are received in the form of non-cash benefits, it soon became clear that this set of questions could be used to reasonably estimate the number of people without health insurance. Since the CPS was already one of the most widely used household economic surveys conducted by the Federal Government, the Census Bureau and others began using the March CPS as the basis for estimates of the uninsured population.²

Since 1980, the Census Bureau has estimated the number of people with health insurance coverage in the United States through their Current Population Survey (CPS) Annual Demographic Supplement.³ According to their estimates, 14.6 percent of the population lacked health insurance coverage during the entire year of 2001, up from 14.2 percent in 2000, an increase of 1.4 million people. This reverses two years of falling uninsured rates. A number of studies estimate that uninsured rates in rural areas are higher than rates in urban areas, with most studies placing the percentage of uninsured at approximately 20 percent.⁴

The Census Bureau also states that the number and percentage of people covered by employment-based health insurance dropped in 2001, from 63.6 percent to 62.6 percent. The decline in employment-based health insurance is the main reason the number of uninsured has increased. Compared with 2000, the proportion of employers providing health insurance to their employees fell for firms with fewer than 25 employees, but was unchanged for larger firms.⁵ As the economy slows down, the number of uninsured is expected to rise even higher. The Kaiser Family Foundation and the Massachusetts Institute of Technology found that the number of uninsured grows by 1.2 million for every one percentage point increase in the unemployment rate.⁶

In Wyoming we see a similar situation. Research & Planning (R&P) has conducted an Employee Benefits Survey of Wyoming employers for the past four years.7 One of the questions in the survey regards the availability of health insurance for employees and their dependents. This allows us to estimate how many employees have access to employer-sponsored health insurance. The percentage of companies providing health insurance for their full-time employees dropped from 66.1 percent in 2000 to 63.2 percent in 2001. The drop not only occurred in smaller companies but also in larger companies (see Table 1). The percentage of full-time employees who were offered health insurance dropped 27.4 percentage points in 2001 for companies with 1 to 4 employees (see Table 2).

Although the survey is a useful tool for determining insurance availability, it does not tell whether employees actually choose to receive coverage for themselves or their dependents. Therefore, as a new area of research, we plan in our 2003 survey to explore employee participation in employer-sponsored health insurance plans. We will conduct this new research jointly with the University of Wyoming. Among other things, we are seeking to understand why employers opt to provide health insurance coverage for their employees. This information will help legislators and policymakers better understand issues regarding employer-provided health insurance. As always, the voluntary cooperation of employers is needed and appreciated.

Employee Reasons for Nonparticipation

Although many Wyoming employers provide health insurance to their employees, some employees may choose not to participate in the program. Nationally, 80.0 percent of workers are eligible in firms that offer coverage. Of that 80.0 percent, 17.0 percent elect not to participate in offered insurance programs.⁸ There are several reasons an employee may choose not to participate in an employer sponsored health insurance plan. One reason is cost. Many employers require employees to share part of the premium costs. Employees may find it difficult to pay their portion of the health insurance premium. Premium costs have been extremely volatile, with growth rates ranging from a low of 0.8 percent in 1996 to highs of 18.0 percent in 1989 and 11.0 percent in 2001.⁹ To offset some of the increase, 75.0 percent of large firms and 42.0 percent of small firms surveyed indicated that they were “very likely” or “somewhat likely” to increase employee premium costs in the next year.¹⁰ Other employers plan on offsetting cost increases by raising deductibles, increasing the burden for employees even further.¹¹ Another reason for employee nonparticipation is coverage through a spouse’s plan. With the increasing number of two income households, this becomes a much greater possibility. If both spouses have employers that offer coverage, the couple may shop for the better deal between the two employers. In some instances it may be more beneficial to be covered under a spouse’s plan because of such things as better coverage, lower premium cost, or one deductible for the whole family. Additionally, an employee covered under a separate insurance plan may decide that the administrative hassles of dealing with two or more insurance plans exceed the advantages. Another reason for not electing coverage through an employer could be that the employees choose to buy coverage on their own, or may qualify for coverage through government programs.

Employer Reasons for Nonparticipation

Employers have their own reasons for not offering health insurance coverage to their employees. Again, costs associated with health insurance plans may be a factor. Commonly, employers pay at least half of the premium for coverage of an employee. In 2001 the average monthly cost of single and family coverage was $221 and $588, respectively. Of that amount, the majority of firms pay between $150 and $250 per month for single coverage and from $500 to $650 for family coverage.¹² For small employers, cost is the most important factor cited for not offering health insurance.¹³ Another reason may be an increase in paperwork for administering the plan. Policy offerings may be too complicated, or the employer may not be familiar with coverage options. Some employers may not consider the benefits of providing health insurance to their employees to be worth the costs to their company. Others may feel it is not their responsibility since it is not required by law.

Industries such as Construction, Services, and Retail Trade have high turnover or are highly seasonal. Consequently, very few employees would ever become eligible for coverage, making health insurance less valuable to workers and employers alike. The Kaiser Family Foundation reports firms that employ many low-wage workers are least likely to provide insurance, as are companies with high turnover in their workforce. According to their survey, only 33.0 percent of all firms that reported 50.0 percent or more turnover in the last year offered coverage, compared to 68.0 percent for businesses with lower turnover.¹⁴ The costs of benefits may be higher than the cost of turnover if a sufficient pool of willing low-wage labor is available. Tax breaks to employers may increase the cost of turnover relative to benefits and create a structure which encourages employers to provide benefits.

The shortage of employer-provided health insurance in rural areas is even more problematic. “Jobs in small businesses that are less likely to offer health benefits are more common in rural areas, such as farming, general labor, service and repair work.”¹⁵ Part-time or self-employment in the rural economy also are associated with lower health insurance coverage rates.¹⁶

Conclusion

Affordable and available health insurance is expected to continue to be a major issue of importance to legislators, policymakers, and the public as health care costs continue to rise. In rural areas, where it is already difficult to find affordable health care insurance, the issues will demand further attention.

R&P looks forward to providing results of research specific to Wyoming on such issues as participation rates of employees in employer-sponsored health insurance plans for Wyoming, and why employers may or may not choose to provide that option to their employees.

¹Council of Economic Advisors, Executive Office of the President, Economic Report of the President, February 2002, p. 145-149.

²Charles T. Nelson and Robert J. Mills, U.S. Census Bureau, “The March CPS Health Insurance Verification Question and Its Effect on Estimates of the Uninsured,” August 2001, <http://landview.census.gov/hhes/hlthins/verif.html> (January 9, 2003).

³Ibid.

⁴The Henry J. Kaiser Family Foundation, “The Uninsured in Rural America,” Kaiser Commission on Key Facts, April 2001, <http://www.kff.org/content/2001/2252/2252.pdf> (January 8, 2003); U.S. Dept. of Health and Human Services, Health Resources and Services Administration, The Rural Uninsured: Highlights from Recent Research, n.d., <http://ruralhealth.hrsa.gov/policy/UninsuredSummary.htm > (January 8, 2003).; National Rural Health Association, Access to Health Care for the Uninsured in Rural and Frontier America, n.d., <http://www.nrharural.org/dc
/issuepapers/ipaper15.html> (January 9, 2003).

⁵U.S. Census Bureau, “Health Insurance Coverage: 2001” n.d., < http://landview
.census.gov/hhes/hlthins/hlthin01/hlth01asc.html > (December 5, 2002).

⁶The Henry J. Kaiser Family Foundation, “Trends and Indicators in the Changing Health Care Marketplace, 2002,” Chartbook, May 2002, p. 16.

⁷For access to the Employee Benefits Survey, visit our website at <http://doe.state.wy.us/LMI/benefits/bentoc.htm>.

⁸The Henry J. Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits, 2001 Annual Survey, p. 3.

⁹The Henry J. Kaiser Family Foundation, Chartbook, p. 28.

¹⁰Ibid., p. 30.

¹¹National Center for Policy Analysis, “Employees Paying More for Health Care,” December 10, 2001 <http://www.ncpa.org/iss/hea/2001/pd121001d.html> (January 10, 2003).

¹²The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits, 2001 Annual Survey, p. 13.

¹³Ibid., p. 35.

¹⁴Ibid.

¹⁵The Henry J. Kaiser Family Foundation, “The Uninsured in Rural America,” Kaiser Commission on Key Facts, n.d., <http://www.kff.org> (January 8, 2003).

¹⁶U.S. Dept. of Health and Human Services, Health Resources and Services Administration, The Rural Uninsured: Highlights from Recent Research, n.d., <http://ruralhealth.hrsa.gov/policy/UninsuredSummary.htm> (January 8, 2003).

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