The University of Michigan
Can the Employer-Based Health Insurance System Reduce America's Uninsured?
What leads two-thirds of companies to offer coverage and 82 percent of employees to accept such offers? A review of the research, conducted for The Economic Research Initiative on the Uninsured by economists Linda Blumberg, Ph.D., of The Urban Institute and Len Nichols, Ph.D., of The Center for Studying Health System Change, shows that employer decisions to offer insurance, and employee decisions to take it, are driven largely by premium rates, the tightness of the labor market, and availability of insurance elsewhere.
However, questions about the size of these effects remain unanswered. We don't know how newly proposed tax incentives will change employer behavior, or how firms weight differing employee preferences between health insurance and higher wages. Understanding what motivates employers and workers is critical for determining the fate of new incentives or programs for expanded coverage, particularly as employers face challenges that could deter them from offering health insurance.
Q&A with Linda Blumberg, Ph.D.
Linda J. Blumberg, Ph.D., senior research associate at The Urban Institute, has spent a decade studying health insurance issues. Blumberg co-authored the paper, "Why are so Many Americans Uninsured? A Conceptual Framework, Summary of the Evidence and Delineation of the Gaps in our Knowledge."
Q: We know employers consider overall preference of workers, competition for labor and cost of insurance when offering insurance. What don't we know about employers' decision-making in this area?
A: We don't know exactly how employers take preferences of different workers and weigh them in order to decide whether to offer health insurance. We don't know how employers pass the costs of health insurance back to their workers.
Q: Why do some workers turn down employer-based insurance when it's offered?
A: Workers are sensitive to price, especially out-of-pocket price. The biggest reasons individuals decline offers of health insurance are that it's too expensive and they have other coverage sources available, such as through a spouse's employer.
Q: How would tax credits for insurance purchases in the private non-group market affect the supply and demand of employer-sponsored insurance?
A: Many young and healthy people in a firm may determine it is more attractive to use tax credits to purchase health insurance in the non-group market than through their employer, especially if these workers perceive they may get some wages back if their employer stops offering insurance. Insurance is likely to be more expensive in the non-group market for employees who are older or have health problems, so they are less likely to take advantage of tax credits.
But are those who use tax credits really going to get wages back? That's an open question. Also, overall demand for health insurance in a firm declines if some workers opt for the non-group market. How does that affect the decision of the employer to offer or not? We don't really know. In the extreme, you could see young, healthy workers wanting to get health insurance through the non-group market with a tax credit, as it would potentially be less expensive. Healthy workers' preferences could lead the employer to drop coverage, and older workers and higher-cost workers, who would find it difficult to access affordable health insurance premiums in the non-group market, are then left to their own devices.
Q: What should policymakers think about?
A: How do we subsidize low- and moderate-income individuals and increase their purchasing power? How are risk pools affected by reforms under consideration? This is of critical importance but often lost in the debate. How is risk spread within the contours of a reform? How is the mix of risks changing as a consequence of changing incentives between different types of insurance options? To the extent that risk is segmented so much that individuals who are high-cost or high-risk have to bear all costs themselves, these individuals will be even more vulnerable. Or, if we create some additional pooling, but don't spread risk broadly enough, we may end up scaring off low-risk individuals. So we need to think very carefully about designing mechanisms for spreading risk as broadly as possible so we don't end up making the existing situation worse.Click here for full Q&A with Linda Blumberg, Ph.D.
Click here for the full paper (Adobe PDF)
Funded by The Robert Wood Johnson Foundation, ERIU is a five-year program shedding new light on the causes and consequences of lack of coverage, and the crucial role that health insurance plays in shaping the U.S. labor market. The Foundation does not endorse the findings of this or other independent research projects.