Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

The fact that health insurance costs increase as a result of rising health care costs is well known. What is less well known is that despite rising health insurance premiums, many employers continue to pay 100 percent of the premium cost for their employees. While MEPS-IC (Medical Expenditure Panel Survey – Insurance Component) data show that the percent of establishments that offer health insurance and fully pay for at least one single coverage plan decreased from 44% in 2003 to 41% in 2005, many workers continue to have access to at least one plan with no employee contribution.

Multivariate analysis using 2003 MEPS-IC data shows, however, that the probability that an establishment pays 100 percent of the premium cost for single and for family coverage significantly increases if the employer is a single-unit and small in terms of the number of employees. Relative to an establishment with 1000 or more employees, an establishment with fewer than 10 employees is 20 percent more likely to pay 100 percent of the premium cost for single coverage and 15 percent more likely to pay 100 percent of the premium cost for family coverage. The health benefit decisions made by small employers impact a small but not insignificant percentage of the workforce. It is important to note, however, that the distribution of establishments differs from the distribution of employees. For example, 2001 MEPS-IC data shows that about 54 percent of establishments that offered one plan paid 100 percent of the premium cost for single coverage, but only 34 percent of employees at these establishments had fully paid single coverage plans.

The goal of this paper is to more closely examine the behavior of small firms and their decision to pay 100 percent of the premium cost for their employees. Since small firms fall into a bimodal distribution (e.g., small law firm versus corner grocery store), the wage heterogeneity across small employers will be taken into account. This is important since higher wage earners would benefit more from tax advantages, such as whether or not employee contributions towards health insurance premiums are tax deductible. Including unemployment within the employer’s county will also control for the impact of local labor market conditions. In addition to these key measures, the analyses will control for additional establishment characteristics (i.e., single unit status, firm age, ownership) and workforce characteristics (i.e., unionization, part-time status).

Our methodology involves multivariate analyses using data from the MEPS-IC survey (1997 through 2005), which collected establishment level data on the health insurance plans offered to employees, as well as establishment and workforce characteristics. The MEPS-IC surveys a nationally representative sample of public and private establishments, but this work will focus on the private sector only.

Our analyses so far show that the provision of employer-sponsored health insurance at no cost to employees is related to specific organizational characteristics. Further analysis will enable us to better understand changes in employer/employee cost sharing in an era of increasing health care expenditures.