Number 3, September 2003



The University of Michigan
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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: What do we know about why some employers offer health insurance?

A: We believe employers' decisions to offer health insurance reflect overall worker preferences. The more a particular firm's workforce wants and is willing to pay for health insurance, the more likely the employer will offer it.

Competition for particular types of labor also drives certain employers to offer it. Depending on the industry and worker type, employers recognize they're going to have to offer health insurance to compete for highly productive workers because these workers can seek jobs with health insurance elsewhere. Certain employers have to offer health insurance to retain or attract such workers. However, in low-wage labor markets very few employers offer health insurance.

Price is also an issue. Traditional economic theory suggests workers bear the full cost of health insurance, including the amount employers pay. In the absence of being offered health insurance, they would have gotten higher wages. While workers are bearing the brunt of health insurance, it may not be 100 percent.

Q: 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: Which employers are likely to offer health insurance and which aren't?

A: Particular industries, such as manufacturing companies, are more likely to offer than agricultural and retail firms, for example. There's a considerable range, but clear patterns come up by industry type. Firm size is very important too. Large firms are much more likely to offer health insurance than are small firms. Firms with high concentrations of low-wage workers and employers facing high worker turnover are less likely to offer health insurance. We also see regional differences. Employers in the Northeast and Midwest are more likely to offer it than are firms in the West and the South. Employers facing higher health insurance premiums are less likely to offer than are firms that are offered lower premiums.

Q: What kinds of workers tend to take up employer offers of health insurance?

A: Lower-income workers are less likely to take up offers of health insurance, as are lower educated workers. Higher-educated and white-collar workers are more likely to take-up offers. Workers with a medical condition or in poorer health are more likely to take up insurance offers.

Workers whose spouses are offered ESI are significantly less likely to take up employer offers. Out-of-pocket premium costs also affect the decision to take up. Workers with children are more likely to take up, as are full-time workers. But full-time workers are more likely to have an offer.

Q: When considering private sector driven proposals, what should policymakers keep in mind about why some employers offer coverage and why some don't?

A: Employers are responsive to total premium in their decision to offer. As a result, we need to be extraordinarily mindful of how risk pools are constructed, and how we deal with those groups or individuals who are brought into that risk pool. Policymakers should be mindful of how those coming into the risk pool affect the premium price for lower cost, or lower risk, individuals. To the extent the costs of higher risk individuals can be spread as broadly as possible, the less likely you would adversely effect the decisions of the low-risk to purchase. Not only are workers responsive to price, but employers respond to premium price. Employer offer decisions will drive the degree to which reforms can expand health insurance coverage in the employer-based market. Policymakers should be mindful about the things that are important for the employer offer decision, and premium is a real big piece.

There are very rational reasons why some employers don't offer. Price is an issue, but so too are workers' preferences and certain other costs. For example, when you have a workforce heavily dominated by minimum wage workers, even when workers want to trade wages for health insurance, there is no way for an employer to pass those costs back to the worker. Another issue for employers is worker turnover. High worker turnover can impose extra costs on health insurance offers. When crafting policy, we need to consider options for those uninsured workers who are employed by firms that have decided for rational reasons not to offer health insurance.

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.

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Funded by The Robert Wood Johnson Foundation, ERIU is a three-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.