Who Declines Employer-Sponsored Health Insurance and Is Uninsured?

Issue Brief No. 22

October 1999

Peter J. Cunningham, Elizabeth Schaefer, Christopher Hogan

One in five uninsured Americans is offered health insurance through their own employer or a family member's employer but opts not to enroll. Among those who decline employer-sponsored coverage, cost is most frequently cited as the primary barrier. Drawing on two surveys from the Center for Studying Health System Change's (HSC) Community Tracking Study, this Issue Brief presents new findings on who turns down employer-sponsored coverage and remains uninsured as a result. Given the central role that cost plays in enrollment decisions, policy makers must consider strategies for addressing the problem highlighted by this study: low enrollment rates among lower-income workers.

Insurance Coverage

More than two-thirds of Americans under age 65 have access to employer-sponsored health insurance, either directly through their own employers or indirectly as dependents of family members who receive insurance through their employer.

Among those with access to employer-sponsored coverage, estimates from HSC's 1996-1997 Household Survey indicate that 14 percent are not enrolled. Most of those who do not enroll have coverage from other sources: roughly one-third have Medicaid or other public coverage, and another one-third have private insurance obtained directly or provided by someone outside the family. Only one-third of those who decline employer-sponsored coverage are uninsured, representing 5 percent of all people with access to employer-sponsored insurance.

Nevertheless, this 5 percent amounts to 7.3 million uninsured people according to the Household Survey, constituting approximately 20 percent of all uninsured Americans, including 2.2 million children. Put differently, about one in five uninsured individuals has access to employer-sponsored coverage, either through their own employer or as a dependent of another family member.

Enrollment Barriers: Low Income and High Premiums

Low-income individuals who have access to employer-sponsored coverage are far more likely to remain uninsured than those with middle and upper incomes. Among those with access whose family income falls below the poverty line, 19 percent are uninsured. That figure drops sharply as family income rises.

The stark income-based disparity in uninsurance rates suggests that low-income workers cannot afford their share of the premium. Indeed, when the Household Survey asked why they did not enroll in an employer-sponsored plan, two-thirds of all uninsured workers and three-fourths of low-income uninsured workers identified cost as the main reason for declining coverage. The rest turned down coverage because of personal preference, such as not believing they needed or wanted insurance, or for other unspecified reasons.

Cost is a barrier to enrollment for low-income workers not only because the employee's share of premiums consumes a larger percentage of their earnings, but also because the actual price of health insurance is frequently higher for low-wage workers than for those whose wages place them in middle- and upper-income brackets. Data from the 1997 RWJF Employer Health Insurance Survey on average employee premiums and enrollment rates by wage level show that employee contributions, even for the least expensive plan available, tend to be higher at firms that primarily employ low-wage workers. It is therefore unsurprising that firms with large numbers of low-wage workers have considerably lower enrollment rates (78 percent) than higher-wage firms.

Other Factors Associated with Enrollment Decisions

High uninsurance rates among those with access to employer-sponsored coverage are also more common among young adults, racial and ethnic minorities, and people in poor health.

Age. Young adults with access to employer-sponsored insurance have the highest uninsurance rate (9 percent) of any age group. This likely reflects both lower incomes and generally good health among young adults, as well as a tendency to weigh the uncertain benefits of health insurance against spending on other priorities.

Race. A disproportionately large share of African Americans and Hispanics with access to employer-sponsored insurance are uninsured (7 percent and 13 percent, respectively), compared with whites (3 percent). This may stem from lower incomes among African Americans and Hispanics, a higher likelihood of working in positions where employee contributions are larger, and/or cultural differences in the perceived importance of health coverage.

Health Status. People in fair or poor health who have access to employer-sponsored coverage are more likely to be uninsured (9 percent each) than those in relatively good health. This is surprising given that individuals in fair or poor health stand to benefit more from insurance, and some may qualify for public coverage. The higher uninsurance rates among those in fair or poor health are partly attributable to their generally lower incomes.

Geographic Location. Uninsurance rates among those with access to employer-sponsored coverage vary considerably across HSC's 12 case study communities, ranging from a high of 11 percent in Miami to a low of 2 percent in Boston, Lansing, and Seattle. As anticipated, uninsurance rates among those with access to employer-sponsored coverage are highest in communities with the largest proportions of low-income residents.

Policy Implications

Employer-sponsored health insurance has long served as an affordable and appealing way for most people to obtain coverage. Group purchasing, employer-subsidized premiums, and the tax exclusion of the employer's premium contribution have generally kept the cost of coverage within manageable reach for most workers. Despite these advantages, however, past premium increases and growth in the employee share of premiums have pushed costs to prohibitive levels for many low-income workers.

A return to large annual premium increases -- as some were forecasting -- could further undermine the affordability of employer-sponsored coverage for some workers.

Many also worried that legislation to regulate managed care plans -- such as patients' bill of rights proposals -- and other health insurance reforms could create pressure to raise premiums. Given the significant role that cost plays in a worker's decision not to enroll in an employer-sponsored plan, substantial premium increases or a greater employee share of costs could lead more employees, particularly lower-income workers, to opt out of coverage.

High employee premium contributions could also pose a problem for those transitioning from welfare to work under the 1996 Temporary Assistance for Needy Families legislation. These individuals often face the loss of Medicaid eligibility -- frequently inappropriately -- and many do not receive an offer of insurance from their employer. Even for former welfare recipients whose employers do offer coverage, the cost of those plans may be prohibitively high.

What can be done to boost enrollment among the 20 percent of uninsured people with access to employer-sponsored coverage? Enrolling all or most of them in available employer-sponsored plans would reduce the number of uninsured by more than several other incremental expansions that have been enacted or proposed in recent years, including the State Children's Health Insurance Program and Medicare buy-ins for near-elderly adults.

Since cost appears to be the main barrier for those who do not enroll, one option is to provide additional financial incentives, such as extending the modest tax subsidies being proposed for people without access to employer-sponsored coverage to include those who do have access. Another approach, combining subsidies with individual mandates -- such as the recent proposal to require children's coverage -- could further increase enrollment among those with access to insurance who, for various reasons, have not signed up. Alternatively, existing public insurance programs like Medicaid could be expanded to offer a low-cost option for low-income workers who cannot afford their employer-sponsored plan premiums.

Any tax subsidy or public coverage expansion would also need to be made available to low-income people who are already enrolled in employer-sponsored plans. This would make such policies considerably more expensive and would heighten concerns about the "crowding out" or substitution of existing private coverage with publicly provided or subsidized insurance. However, this inefficiency in targeting incremental insurance expansions must be weighed against the potential public benefit of extending health insurance to low-income uninsured people and reducing the heavy financial burden on low-income people who are currently enrolled.

Data Sources

This Issue Brief presents findings from two surveys that are part of HSC's Community Tracking Study. The Household Survey, conducted in 1996 and 1997, is a nationally representative telephone survey of the civilian, noninstitutionalized population. Data were supplemented by in-person interviews of households without telephones to ensure proper representation. The survey contains observations on nearly 33,000 families and 60,000 individuals. The overall response rate was 65 percent for families. The 1997 Robert Wood Johnson Foundation Employer Health Insurance Survey is a nationally representative telephone survey of private and public employers, based on responses from 21,545 establishments. The overall response rate was 60 percent.

Notes

1. The analysis assumes that all employer offerings include the option for family coverage. The 1997 RWJF Employer Health Insurance Survey indicates that 98 percent of employees offered health insurance are offered a family option.

2. These estimates are derived from the 1996-1997 Community Tracking Study Household Survey estimate of 35.4 million uninsured individuals, which is somewhat lower than the 1996 estimates from the Current Population Survey.

Sources and Further Reading

U.S. Census Bureau: Health Insurance Coverage — Federal data on health insurance coverage rates, uninsured populations, and employer-sponsored insurance trends from the Current Population Survey.

KFF Employer Health Benefits Survey — The Kaiser Family Foundation's annual survey tracking employer-sponsored health insurance premiums, employee contributions, and enrollment trends.

CMS National Health Expenditure Data — Centers for Medicare and Medicaid Services data on private health insurance spending, including employer-sponsored coverage expenditures.

Robert Wood Johnson Foundation Research Library — RWJF research archive, including the Employer Health Insurance Survey data referenced in this study.

Bureau of Labor Statistics: Employee Benefits Survey — BLS data on employer-provided health insurance access, participation rates, and employee premium contributions by wage level.

Commonwealth Fund: Employer Coverage Research — Research on employer-sponsored health insurance affordability, coverage gaps among low-income workers, and policy options.