Trends in Offering Employer-Sponsored Coverage

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Stephen H. Long, M. Susan Marquis

Employer-sponsored health insurance serves as the primary source of coverage for most Americans and their families, making trends in workplace benefits a critical indicator of the nation's health coverage landscape. During the late 1980s, the share of businesses offering health plans fell, raising alarms among policy makers. Research in the first half of the 1990s, however, showed that trend had reversed. The latest data from the 1997 Robert Wood Johnson Foundation (RWJF) Employer Health Insurance Survey indicate that offer rates had stabilized at roughly 50 percent of all private establishments.

Instability Behind the National Average

The national figure of 50 percent masked substantial movement at the community and individual establishment levels. At the community level, changes in offer rates over a two-year period ranged from a decrease of 5 percentage points in Syracuse, New York, to an increase of 6 percentage points in Boston, Massachusetts. The survey covered 12 randomly selected communities, and the variation was notable.

At the individual establishment level, the churn was even more pronounced. Approximately 13 percent of employers that had offered health insurance two years earlier had stopped doing so by the time of the survey, meaning their workers lost access to workplace coverage. Conversely, about 12 percent of employers currently offering insurance had not done so two years prior, expanding access for their employees. The national stability was the result of these two opposing flows roughly canceling each other out.

The instability in coverage decisions was far greater among smaller firms. Nearly one-quarter of the smallest establishments that had offered insurance two years ago had dropped it, compared with only 4 percent of large employers. A key factor behind this disparity was the greater variability in premiums faced by small businesses. In a year when average premium increases for small and large firms were relatively similar, small firms were significantly more likely to experience dramatic swings in either direction. Thirty-four percent of establishments with fewer than 10 employees reported premium changes exceeding 10 percent, while only 19 percent of large firms reported changes of that magnitude.

Site-Level Variations in Employer Offer Rates

The survey documented offer rates across 12 communities. Boston saw the largest increase, with 54 percent of employers offering coverage at the time of the survey compared with 48 percent two years earlier -- a statistically significant 6-point gain. Cleveland also showed a notable 6-point rise, from 55 percent to 61 percent, though the change did not reach statistical significance. Phoenix and Orange County each saw 3-point gains.

On the other end, Syracuse experienced a statistically significant 5-point decline, falling from 55 percent to 50 percent. Seattle, Lansing, Indianapolis, and Newark showed minimal movement. Miami's rate held flat at 40 percent -- the lowest among the 12 sites. These community-level differences highlight that national trends in employer coverage can obscure significant local variation driven by regional economic conditions, industry mix, and other factors.

Dependent Coverage Remains Nearly Universal

Despite reports at the time -- including a recent article in U.S. News & World Report -- that growing numbers of employers were cutting dependent coverage, the 1997 survey told a different story. Among employers that offered health insurance, 96 percent also extended coverage to employees' dependents. Virtually all of the largest firms provided this option, and even most very small firms with fewer than 10 employees did so as well. Measured by workers rather than firms, 98 percent of employees in establishments offering insurance had access to dependent coverage.

The near-universal availability of dependent coverage did not mean, however, that all employees enrolled their families. Cost remained a major barrier, as employers often subsidized family plans less generously than individual coverage, leaving workers to absorb the difference.

Impact on Employees

Even though employer offer rates had stabilized overall, whether workers actually enrolled in available plans depended on other factors -- including changes in eligibility rules and how much employees were required to pay for coverage. Recent studies at the time showed that employees were increasingly choosing not to participate in the plans offered to them.

The survey results also made clear that continued access to employer-based coverage was not guaranteed. A significant number of employers did drop their health plans, stranding workers who had been participating. To reduce this churning, states had enacted market reforms including rating reforms and guaranteed renewal provisions requiring insurers to continue offering coverage to current customers. The federal government reinforced these protections through the Health Insurance Portability and Accountability Act of 1996, which mandated guaranteed renewal of coverage.

The combination of employer churn -- with a sizable minority of firms dropping and adding coverage each year -- and declining employee enrollment rates pointed to a workplace coverage system that was more fragile than the stable national average suggested. For workers at small firms in particular, the decision to offer or withdraw health benefits could change from year to year based on premium volatility, making employer-sponsored insurance an unreliable foundation for continuous coverage.

Data and Methodology

This Data Bulletin drew on findings from the 1997 Robert Wood Johnson Foundation Employer Health Insurance Survey, a nationally representative telephone survey of private and public employers based on responses from 21,543 private establishments. The survey was conducted by Research Triangle Institute (RTI) and designed by RAND and RTI in collaboration with Health System Change as a component of the Community Tracking Study.

Sources and Further Reading

1997 Robert Wood Johnson Foundation Employer Health Insurance Survey, conducted by Research Triangle Institute.

Related HSC publications: "Trends in the Cost of Employer-Sponsored Coverage," Data Bulletin No. 14; "More Small Firms Offer Health Insurance but Fewer Employees Enroll," Data Bulletin No. 10; "Who Declines Employer-Sponsored Health Insurance and Is Uninsured?" Issue Brief No. 22.