© Copyright 2004 by the Wyoming Department of Employment, Research & Planning

Reasons Why Employers May or May Not Provide Health Insurance Benefits

by: Carola Cowan, Economist

    Under contract with the University of Wyoming, the Department of Employment's Research & Planning (R&P) section surveyed 500 Wyoming employers on factors influencing their decision as to whether or not to offer health insurance benefits to their employees. Results indicate the primary reason for offering health insurance was because employers felt their employees wanted it. The high cost of coverage topped the list of reasons for not providing insurance. It is, therefore, reasonable to assume that employers might be encouraged to provide health insurance if costs were lower.

The Research & Planning (R&P) section of the Wyoming Department of Employment conducts the Employee Benefits Survey on a quarterly basis. In first quarter 2003 (2003Q1) the benefits survey contained additional questions designed to determine why employers may or may not offer health insurance benefits to their employees. In this article we focus on the reasons employers reported for choosing whether or not to offer health insurance.

Methodology

A stratified random sample of 500 companies was selected from the second quarter 2002 Quarterly Census of Employment and Wages (QCEW) database. Companies reporting zero employees for all three months, federal and state government, employers in Agriculture, and private household employers were eliminated from our universe.

Survey response rates varied by industry, company size, and region but were never below 50 percent for any sub-category. The overall response rate was 76.1 percent. To account for response rate differences across industries, the results of the survey were weighted by the number of employers for each industry as reported by the QCEW for 2003Q1.

For the opinion questions, employers were given a choice of answers from which they could check as many as applied to them. They were also given an open-ended question where they could fill in a reason other than what was provided. The questions were as follows:

l For employers offering health insurance, what are the main reasons that you offer health insurance to your employees?
- Employees want it.
- Should be a company responsibility.
- Needed to recruit the best people.
- Reduces employee turnover.
- Reduces absenteeism.
- Increases productivity.
- Improves morale.

l For employers not offering health insurance, would you say your company is currently either looking for or considering ways to offer health insurance to your employees?

l What are the main reasons that you do not currently offer health insurance to your employees?
- Too expensive.
- Too much paperwork.
- Not required by law.
- Not the company’s responsibility.
- Little value to this kind of company.
- High employee turnover.
- Policy offerings are too complicated.
- Not familiar enough with options.
- Most employees are not interested in coverage.
- Most employees are covered elsewhere.
- Most employees would not be eligible.

l Which of the following could lead you to begin offering health insurance to your employees?
- If tax credits were increased.
- If pooling options were allowed to get group coverage with other employers.
- If the state-employee health plan were made available to private employers.
- If “defined contribution” plans were easier to set up.
- Only if mandated by law.

Results

Of the 205 responding employers offering health insurance benefits to their employees, the most common reason for doing so was employees want it (73.2%; see Figure 1). The second most common response was that employers felt they needed it to recruit the best people (57.8%). Reducing employee turnover ranked third (48.5%).

Cost was the main reason employers did not offer health insurance (75.8%), followed by high employee turnover (41.9%) and that most employees are covered elsewhere (25.8%; see Figure 2). Some companies in Construction and Leisure & Hospitality felt offering health insurance to employees was of little value to their type of company because employees in these industries typically lack sufficient tenure to qualify for benefits.

Policy changes that might encourage employers to offer health insurance to their employees included making state-employee health plans available to private employers (34.4%) and allowing employers to pool with each other for group coverage (34.4%; see Figure 3). Nearly half (48.2%) of employers selecting a reason other than those given (31.5%) wrote in that they might consider offering insurance if the premium costs were lower. Interestingly, 26.1 percent of employers not currently offering insurance would consider providing insurance only if it were mandated by law.

Discussion

Many employers view providing health insurance as a key component to attracting and meeting the expectations of employees. Another major reason for offering benefits is to reduce turnover. Some employers also believe the provision improves morale. Far fewer employers report it should be a company’s responsibility to offer health insurance to their employees or that it would increase productivity or reduce absenteeism.

For employers that did not offer health insurance to their employees, the two main deterrents are the high cost of coverage, followed by high employee turnover in industries where employees lack sufficient tenure to qualify for benefits.

Since most employers said cost was the main reason for not offering health insurance, it is therefore reasonable to assume that employers might be encouraged to provide insurance if costs were lower. Unfortunately, lower premium costs was not listed as one of the choices to the question on what might entice employers to begin offering benefits. Lower costs also tie in with allowing employers to pool together for group rates or if the state-employee health plan was available to private employers, since it is believed either of these would result in reduced premium costs. Increased tax credits would also reduce cost to employers, although not as directly as reduced premiums.

If health insurance coverage for employees in Wyoming is to increase, it needs to be made more affordable for employers, preferably through reduced premiums instead of tax credits. However, current tax laws make the cost of purchasing insurance considerably less as health insurance premiums are fully deductible as a business expense. The tax deduction may be thought of as a discount to the cost of health insurance (The Robert Wood Johnson Foundation, n.d.). Additionally, insurance premiums are excluded from the base payroll when calculating an employer’s state taxes and Medicare and Social Security payments. Educating employers on the existing tax advantages may encourage them to offer health insurance benefits.

Employees consider health insurance to be, by far, the most important fringe benefit (The Robert Wood Johnson Foundation, n.d.). It would be reasonable to assume that employees would leave jobs that do not offer insurance benefits if they could find comparable employment with a company offering health insurance coverage.

References

The Robert Wood Johnson Foundation. (n.d.). Guide to health insurance options for small businesses. Retrieved May 18, 2004, from <http://www.CoverTheUninsuredWeek.org/materials/business/>

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