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Snapshots: Insurance Premium Cost-Sharing and Coverage Take-up

One of the many reasons an individual may be uninsured is that she or he decides an employer’s offer of health insurance is too expensive. Several studies have noted the likelihood that a worker will decline an employer’s offer of health insurance increases with the amount he or she is required to contribute. Alternatively, employees may obtain coverage through a spouse, opt for publicly provided coverage if eligible, or decide to do without coverage entirely. This issue brief looks at the connection between premiums and the percent of workers who enroll in employer plans using the two most recent years of the Kaiser/HRET Employer Health Benefits Survey (EHBS). Several of these analyses suggest that the required worker share of the premium can be an obstacle to coverage that raises concerns about the affordability of private health coverage.

The rapid rise in health insurance premiums in the last six years has focused public attention on the cost of health insurance in the United States. Annual premiums for employer-sponsored health insurance for 2006 average $4,242 for single coverage and $11,480 for family coverage.1  Employees contribute an average of $627 annually for single coverage and $2,973 annually for family coverage, with significant variation around these averages. It is reasonable to assume that the likelihood that a worker will accept (or “take up”) an offer of insurance at work is related to the amount that the worker must contribute toward the cost of coverage. For some workers, a high contribution requirement may be more than they are willing to pay for insurance; for others, a high contribution requirement may make other insurance options, such as coverage offered by a spouse’s employer, a more attractive option. This paper examines how the take-up rate for workers within firms varies with the level of premium contributions in those firms.2

Over 155 million nonelderly individuals obtain health insurance coverage through their own or a family member’s employer.The increasing cost of insurance has implications for who and how many individuals obtain insurance coverage through this channel. Higher premium costs have contributed to a decline in the number of firms offering insurance as well as encouraged firms to hire part-time or contract workers or to raise eligibility requirements. Indeed, from 2000 to 2006, the number of firms offering health insurance benefits fell from 69 to 61 percent.4 Faced with these costs, many firms also increase worker cost sharing for premiums, which can put stress on family budgets – particularly for low-income workers. The affordability of premium payments offers a partial explanation for the 5.8 percent fall in the take-up rate of employer-sponsored insurance for low-income workers from 1999 to 2002.5  By comparison, over this same period, the decline in take-up for individuals above 200 percent of poverty was 1.5 percent.

This analysis is based on pooled data from the 2005 and 2006 Kaiser/HRET Employer Health Benefits Surveys (EHBS). The EHBS is an annual survey of public and private firms (excluding the federal government) with three or more employees.6  We limit the sample to workers in firms that offer health benefits.  Because we are interested in the decisions of workers choosing to enroll in plans offered by their employers, we weight the data by number of workers in each firm offering coverage.

The EHBS provides information on the number of workers in each responding firm that is eligible for coverage and the number of eligible workers that become covered.  The ratio of those two numbers is the take-up rate for the firm.  We look at how each firm’s overall take-up rate is related to the contribution that workers must make for single and for family coverage.  We also expand the analysis to examine differences by industry, firm size, and a crude measure of the wages of workers.

The analysis here examines how the single contribution and the family contribution each relate to the overall take-up rate for each firm.  We consider the single contribution and the family contribution as alternative measures of the cost of insurance for workers in a firm.  Unfortunately, the EHBS does not provide information on the family status of eligible workers in firms,7 so we cannot calculate the percentage of workers with families who were eligible to take up family coverage but who instead elected single coverage.  Similarly, the EHBS cannot tell us whether eligible workers who do not take up coverage have families or not.  We cannot, therefore, separately examine the impact of contribution levels for single coverage on the take-up of single coverage and the impact of contribution levels for family coverage on the take-up of family coverage.  We also note that the findings here look at the take-up of insurance at the firm level; we cannot say from these data whether workers who do not take up are uninsured or have coverage elsewhere, such as through a spouse.

Findings

Take-up Rates by Contribution Levels

Figure 1 shows the mean take-up rate for health insurance in firms by the percentage contribution that workers must make toward single coverage.  The contribution categories, with the exception of the first category, represent ranges of premium contributions and are calculated so that there are approximately the same number of workers in each category.  The first category contains workers with no (zero) premium share.8 The figure shows that the take-up rate generally falls as the worker premium contribution increases, with a difference in the take-up rates of just over 20 percentage points between the first and last categories.  The take-up percentages beginning in the fourth contribution category (11.5 to 15.2 percent) through the last category (37.0 percent or more) are each statistically different from the 89 percent take-up percentage for the first category.

Figure 1
Firm Health Insurance Take-Up Rate by Percentage Contribution For Single Coverage

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Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys.  Percentages weighted by number of workers in responding firms.  Lower wage firms defined as those where more than 35 percent of the workers made $20,000 or less in the respective survey year.  Higher wage firms are those with 35 percent or less of such workers.*Percentages in contribution categories 4 through 10 different than first category (0%) at p<.05.

Figure 2, which shows the mean take-up rate for health insurance in firms by the percentage contribution that workers must make for family coverage, presents a similar pattern as that of Figure 1. As with Figure 1, take-up generally falls as the worker premium contribution increases, with a difference between the first and last categories of 13 percentage points. The take-up percentages beginning in the third contribution category (11.7 to 17.4 percent) through the last category (56.3 percent or more) are each statistically different from the 90 percent take-up rate in the first category.

Figure 2
Firm Health Insurance Take-Up Rate by Percentage Contribution For Family Coverage

Figure 2

Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys.  Percentages weighted by number of workers in responding firms.*Percentages in categories 3 through 10 are different than the first category (0 to 2.6) at p<.05.

As expected, take-up rates are highest when workers must contribute only a small share of the total premium, and fall as the share of the premium that workers must pay rises. Take-up falls more when the single coverage contribution rate is used to measure worker costs than when the family contribution rate is used.  It is possible that workers with families facing high contribution levels default to single coverage rather than forgoing coverage at their firm altogether.  This would make take-up rates appear less sensitive to family premium contributions than single, since it is the latter which may influence the decision not to insure for both workers with families who find family coverage unaffordable as well as single individuals.  A somewhat surprising finding is that 11 percent of workers do not take up coverage even when single coverage is available to them for no (zero) contribution.  These workers may have more attractive insurance options from another source, such as coverage available through a spouse, or may be able to get other benefits from their employer if they forgo health insurance.9

Take-up Rates by Contribution Levels and Firm Characteristics

This section looks at how the basic findings on take-up rate and contribution levels vary with firm characteristics including employer size, industry, and concentration of low-wage workers.  Because the sample is being divided by firm characteristics, the number of contribution categories is reduced to five in order to assure that we have a sufficient number of observations at each point of interest.10 We focus primarily on the contribution for single coverage rather than family coverage because the single coverage level appeared to have a larger effect than the family level in Figures 1 and 2.  Similar analyses looking at the contribution level for family coverage are shown in Appendix A.

Firm Size

Figure 3 shows take-up rate information from Figure 1 (i.e., take-up rate by worker contribution for single coverage) broken out for small and large firms.  Small firms are firms with three to 199 workers, and large firms are firms with 200 or more workers.  Take-up rates fall as contribution percentage rises for workers in both small and large firms, with small firms having significantly lower take-up than large firms in three of the five contribution categories.  The lower take-up in small firms may reflect the relatively lower wages in small firms, or may indicate that, within these coverage categories, workers in small firms find the single coverage offered to them somewhat less attractive, relative to alternatives, than workers in larger firms.  We note that the same pattern does not hold when categories for contributions for family coverage are considered (Figure 6 in Appendix A), where we see no significant differences in take-up by firm size.

Figure 3
Firm Take-Up Rate by Percentage Contribution For Single Coverage and Firm Size

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 Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys.  Percentages weighted by number of workers in responding firms.* Differences between firm sizes are significant at p<.05 in categories 2 (0.1% to 12.7%), 3 (12.8% to 19.9%) and 5 (26.9% or more).

Concentration of Low Wage Workers

The EHBS asks firms to report the percentage of full-time workers who are paid less than $20,000 per year, or about $10 per hour.  We divided firms into two groups:  “lower wage” firms, in which more than 35 percent of workers earn $20,000 or less, and “higher wage” firms, where 35 percent or fewer workers earn $20,000 or less.  Figure 4 shows the take-up rate information from Figure 1 (i.e., take-up rate by worker contribution for single coverage) divided between lower-wage and higher-wage firms.  For both higher-wage and lower-wage firms, take-up is higher in the lowest contribution categories and is lower in the categories where workers pay large premium shares.  Within contribution categories, take-up is significantly higher in higher-wage firms than in lower-wage firms in four of the five categories, likely reflecting the difficulty that lower wage workers have paying premium shares.  Other explanations may be that lower wage workers tend to have less interest in purchasing health care or that they are more likely to be eligible for public coverage.  The pattern in Figure 4 is similar when contribution categories for family coverage are considered (Figure 7 in Appendix A).

Figure 4
Firm Take-Up Rate by Percentage Contribution For Single Coverage and Wage

Figure 4

Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys.  Percentages weighted by number of workers in responding firms.  Lower wage firms defined as those where more than 35 percent of the workers made $20,000 or less in the respective survey year.  Higher wage firms are those with 35 percent or less of such workers.*Differences between higher-wage and lower-wage firm percentages are significant at p<.05

Industry

The EHBS also classifies firms by industry category.  We selected the four industry groups that had sufficient observations for analysis.  Two industry groups had relatively high overall take-up rates (Manufacturing and Transportation/Utilities/Communications) and two industries with relatively low overall take-up rates (Retail and Service) based on prior EHBS surveys.  Even with a sample that combines two years, however, some industries do not have a reasonable number of observations in each of the contribution categories; for example, state and local government historically has had a high take-up rate in the EHBS surveys but does not have very many observations in the higher contribution categories.

Figure 5
Firm Take-Up Rate by Percent Contribution For Single Coverage and Industry

Figure 5

 Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys.  Percentages weighted by number of workers in responding firms.a Differences between Trans/Util/Comm and Service are significant at p<.05.
b Differences between Trans/Util/Comm and Retail are significant at p<.05.
c Differences between Manufacturing and Service and between Manufacturing and Retail are significant at p<.05.

Figure 5 shows mean take-up information from Figure 1 (i.e., take-up rate by worker contribution for single coverage) broken out for the selected industries.  Take-up rates generally fall within industries as the worker contribution percentage rises, but there are exceptions for the low contribution categories within Manufacturing and Retail.11 Workers in the Transportation/Utilities/ Communications industry grouping have significantly higher take-up than workers in the Service industry in four of the contribution categories and significantly higher take-up than workers in the Retail industry in three of the contribution categories.  The pattern for Manufacturing is a little different: the take-up among workers in Manufacturing firms is not statistically different from workers in Retail or Service firms in the first two (lower) contribution categories, but is higher for the next three categories where workers pay higher shares of the premium.  Consistent with our previously discussed findings, take-up is lower in the high-contribution categories for workers in the industries where we would expect to find lower wages (Retail and Service) than in the higher-wage industries (Manufacturing and Transportation/Utilities/Communications).

Conclusion

The negative relationship between premium shares and take-up rates in nearly all of the above figures is evident.  They show how the size of the premium workers are asked to pay for health insurance is relevant to health insurance enrollment decisions, even though some workers refuse coverage when no contribution is required on their part.  While alternative coverage options are unknown for these groups of workers, enrollment patterns also seem to differ by wage level and variables associated with wages, such as firm size and industry.  This pattern suggests that the worker share of the premium is a factor when considering the affordability of health insurance options.  For some low-income workers, higher premium shares and lack of alternative coverage options may increase the likelihood that they become uninsured.

Appendix

This appendix contains three figures that show the variation in mean take-up rate by percentage worker contribution for family coverage, adjusted for the following firm characteristics: firm size, concentration of lower-wage workers, and industry.  These charts correspond to Figures 3, 4, and 5, but use categories based on worker contributions for family coverage rather than for single coverage.

Figure 6 shows that take-up falls as contribution rates for family coverage rise in both small and large firms.  There are no significant differences between small and large firms for any of the contribution categories.  This differs from the pattern shown Figure 3 (based on contributions for single coverage), where small firms had significantly lower take-up rates in three of five contribution categories.

Figure 6
Firm Take-Up Rate by Percentage Contribution For Family Coverage and Firm Size

Figure 6

Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys.  Percentages weighted by number of workers in responding firms.

Figure 7 shows that take-up falls as contribution rates for family coverage rise in both lower-wage and higher-wage firms.  The take-up rate is significantly lower for lower-wage firms than for higher-wage firms in every coverage category.  This is similar to the pattern shown in Figure 4 (based on contributions for single coverage), where the difference between lower-wage and higher wage firms was significant in four of the five contribution categories.

Figure 7
Firm Take-Up Rate by Percentage Contribution For Family Coverage and Income of Employees

Figure 7

Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys. Percentages weighted by number of workers in responding firms.* Differences between higher-wage and lower-wage firm percentages are significant in each contribution category at p<.05.

Figure 8 shows the relationship between take-up and contribution rates for family coverage broken out by four industry groupings.  The general direction across industries is downward sloping, but the sample sizes are small for several of the industries (there are very few Retail firms in the sample with low contribution rates for family coverage and few firms in the Transportation/Utilities/Communications industry grouping with large contribution rates for family coverage), so very few of the differences between industries are statistically significant.

Figure 8
Firm Take-Up Rate by Percentage Contribution For Family Coverage and Industry

Figure 8

Source: Pooled data from 2005 and 2006 Kaiser/HRET Annual Employer Health Benefits Surveys. Percentages weighted by number of workers in responding firms.a Differences between Manufacturing and Trans/Util/Comm significant at p<.05.
b Differences between Manufacturing and Service significant at p<.05.
c Differences between Retail and Trans/Util/Comm significant at p<.05.
d Differences between Service and Trans/Util/Comm significant at p<.05

Notes:

1. Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits 2006 Annual Survey.  Available online at:  http://www.kff.org/insurance/7527/.  Family premiums are for a family of four.

2. The take-up rate for health insurance is defined by the number of workers enrolled in a health insurance plan in a given firm divided by the number of workers offered (i.e., eligible for) at least one plan.  For a fuller discussion of the effect of premium prices on insurance coverage, see, e.g.: Gilmer T., Kronick R., “It’s the premiums, stupid: Projections of the uninsured through 2013.” [Web Exclusive] Health Affairs, April 5, 2005.  Available online at: http://www.healthaffairs.org.

3. Kaiser Family Foundation, Kaiser Commission of Medicaid and the Uninsured, Health Insurance Coverage in America, 2004 Data Update, November 2005. Available online at:http://www.kff.org/uninsured/7415.cfm.

4. Most of this decline was due to small firm decisions not to offer insurance, and thus the cumulative number of workers without an offer has not changed as dramatically.  Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits 2006 Annual Survey.  Available online at: http://www.kff.org/insurance/7527/.

5. Blumberg, Linda J. and John Holahan, “Work, Offers, and Take-Up: Decomposing the Source of Recent Declines in Employer-Sponsored Insurance,” Urban Institute: Health Policy Online, No. 9, May 17, 2004.  Accessed on December 14, 2006 at: http://www.urban.org/url.cfm?ID=1000645.  For a more recent exposition, see:  Clemans-Cope, Lisa, Bowen Garrett and Catherine Hoffman, “Changes in Employees’ Health Insurance Coverage, 2001-2005,” Kaiser Family Foundation, Kaiser Commission on Medicaid and the Uninsured, October 2006.  Accessed on December 14, 2006 at: http://www.kff.org/uninsured/7570.cfm.

6. More information about the 2006 and 2005 EHBS can be found online at:http://www.kff.org/insurance/7527/ and http://www.kff.org/insurance/7315.cfm (respectively).

7. The survey asks employers how many workers are eligible for health insurance, but does not ask what percentage are eligible for single coverage or family coverage.

8. The first category represents about 44 million workers, and each of the other categories has between 18.3 and 18.8 million workers, based on two years of pooled data.

9. Kaiser Family Foundation and the Health Research and Educational Trust, Employer Health Benefits, 2004 Annual Survey.  Available online at: http://www.kff.org/insurance/7148.cfm.

10. Similar to the approach for Figure 1, the first contribution category contains workers who face no (zero) contribution for single coverage.  The remaining categories are calculated to contain the same number of (weighted) workers.

11. There are fairly large confidence intervals (95%) around the point estimates for Manufacturing (70%-91%) and Retail (74%-91%) compared to Transportation/Utilities/Communication (97%-100%) and Service (84%-89%).