Employers Expected to Continue Offering Health Coverage Despite Cost, Study Finds

By Staff
Bureau of National Affairs
May 6, 2008

Despite rising costs, most large employers likely will continue offering health insurance coverage to their workers, according to an analysis released May 2.

The percentage of employers offering workers health insurance coverage has declined in recent years but that is in large part due to the lack of coverage provided by small firms, the analysis found.

An issue brief from the Alliance for Health Reform found that the number of people enrolled in employer-sponsored health plans reached its peak at 167.5 million in 2000, or 68.4 percent of the population, falling to 161.7 million in 2006, or 62.2 percent of the population.

"With mounting health care costs and the weight of the administrative burden, it would seem that employers would be racing to the exits, embracing alternatives" to the employer-sponsored health care system, the analysis said. But "many large employers seem wary of relinquishing responsibility for providing health insurance," it added.

"For the present, businesses and even some unions seem inclined to maintain the present employer-based system," it said.

The report did not say why employers continue to offer health coverage to workers and its author was unavailable for comment. But some analysts have said businesses continue to offer coverage to gain a competitive advantage in the job market, among other reasons.

The analysis, Sponsored Coverage: Shape It Up? Ship It Out?, said researchers attribute the decline in employer-sponsored coverage more to new employers failing to offer coverage than to established employers cutting coverage.

Fewer Small Firms Offer Coverage

The decline in employer-sponsored coverage since 2000 in large part has been driven by a decline in the number of small firms offering health insurance, the analysis said. Among small firms with three to 199 workers, 68 percent offered coverage in 2000, but by 2007 only 59 percent of these firms offered coverage, it said.

By contrast, since 1999, about 99 percent of firms with 200 or more workers have offered health benefits to their employees, it said.

The analysis found that not only is the overall number of firms offering health coverage to their workers declining, but the cost of the coverage to workers also is rising.

Between 1999 and 2007, for example, the average monthly worker premium contribution for individual coverage rose 115 percent, from $27 to $58, while the monthly worker contribution for family coverage rose 112 percent, from $129 to $273. In contrast, overall inflation increased 24 percent over the same time period, according to the analysis.

Employers also have significantly increased the amount of annual deductibles, the analysis added. In 2000, only 14 percent of workers had a deductible of $500 or more; by 2006, 38 percent did. However, although total premiums have risen, the share of premiums paid by workers has been relatively stable since 1999, the brief stated.

The analysis said supporters of employer-provided coverage argue that it helps keep costs down by pooling insurance risk for unhealthy workers with a larger number of healthy workers.

"Without risk pooling, sicker beneficiaries might gravitate to certain insurance products, causing the premiums to go up and driving healthier individuals away," it said. Administrative costs also are lower than in the nongroup market and "larger employers also have the resources to employ human resources personnel with the expertise to evaluate insurance plans and negotiate for better quality and pricing."

Others hold that employer-provided coverage "puts healthier workers at a disadvantage," according to the analysis. "Such workers pay more for their premiums, since they are in effect subsidizing the cost of insurance for high risk individuals," the analysis said.

Critics of the employer-based system also hold that employers "do not necessarily share the same interests as their employees in judging the quality and cost of plans, and that individuals are best suited to judge their own health care needs," the report said.