Section 3: Employee Coverage, Eligibility, and Participation

Employers are the principal source of health insurance in the U.S., providing health benefits to about 63% of nonelderly persons in 2002.⁴ Although the percentage of workers receiving health insurance through their own employer has exhibited only slight annual declines, the cumulative drop since 2001 is over four percentage points. The majority of this decline is among all small firms (3-199 workers). As a consequence, we estimate that there are at least five million fewer jobs providing health insurance in 2004 than in 2001.

Most workers are offered health coverage at work, and the vast majority of workers who are offered coverage take it. Workers without coverage through their own employer may not be offered coverage by their firm, may be ineligible for benefits offered by their firm, or may refuse an offer of coverage from their firm.

• Among firms offering health benefits, 67% of workers are covered by their own firm’s health plan, a similar rate to last year (Exhibit 3.2).
  • Despite only small annual declines in the percentage of workers receiving coverage through their own employer, coverage (in firms both offering and not offering health benefits) decreased significantly between 2001 and 2004 from 65% to 61%. The majority of this decline in the number of jobs with health insurance is among all small firms (3-199 workers) (Exhibit 3.1).
  • Coverage rates do not differ significantly by firm size, but they do vary by industry, likely due to differences in eligibility. The coverage rate for workers in the retail industry is 47%, compared to 84% for state and local government workers and 82% for those working in the transportation, communication, and utility industries (Exhibit 3.2).
  • Higher wage firms—where fewer than 35% of workers earn $20,000 or less annually —have higher coverage rates than lower wage firms—where 35% or more of workers earn $20,000 or less annually. Seventy percent of workers in higher wage firms that offer health benefits are covered, compared to 46% of workers in lower wage firms offering benefits.
• Even in firms that offer coverage, not all employees are eligible for their firm’s health benefits. Additionally, not all employees with an offer of health coverage participate in it. The number of workers covered is a product of both the percentage of workers who are actually eligible for the firm’s health insurance and the percentage who choose to “take up” (i.e., elect to participate in) the benefit.
  • Eligibility for health benefits does not vary by firm size and is unchanged from last year. Overall, 80% of workers in firms offering health benefits are eligible for coverage (Exhibit 3.2).
  • Employees who are offered coverage through their employer generally elect to participate in it (the “takeup” rate). Eighty percent of workers in all small firms (3- 199 workers) take up coverage, similar to 83% of workers in all large firms (200 or more workers) who choose to participate. These numbers are statistically unchanged from 2003, but the percentage of workers who take up coverage in all small firms is statistically different from 2001 (84%) (Exhibits 3.2, 3.3).
  • The take-up of employer-sponsored coverage varies somewhat by industry. Workers in retail have a lower take-up rate (77%) than workers in other industries. Ninety-four percent of workers in state/ local government and 92% of workers in the transportation, communication, and utility industries take up an offer of employer-sponsored coverage (Exhibit 3.2).
  • The likelihood of accepting a firm’s offer of coverage varies by firm wage level. Employees in higher wage firms—where fewer than 35% of workers earn $20,000 or less annually—are more likely to take up coverage (84%) than employees in lower wage firms (35% or more of workers earn $20,000 or less annually) (71%).
• One aspect of coverage affecting eligibility is new employees’ waiting period for coverage. Eighty-two percent of covered workers in all small firms (3-199 workers) and 65% of covered workers in all large firms (200 or more workers) work for a firm that imposes a waiting period on new employees before they are eligible for coverage. The average waiting period for coverage is unchanged from last year at 1.6 months (Exhibit 3.5).