To offer or not to offer: the role of price in employers' health insurance decisions

Abstract

Objective: To estimate the effect of changes in price on employers' decisions to offer health insurance.

Data sources/study setting: A 1993 survey of 22,347 private employers in ten states was used.

Study design: Probit regression was used to estimate the probability of offering insurance as a function of the price and employer characteristics. For employers who did not offer insurance, a price cannot be directly observed. We estimated price for nonofferors using reported quotes received by recent shoppers and a selection model to correct for differences between recent shoppers and nonshoppers.

Principal findings: Changes in price affect decisions to offer insurance; however, even a 40 percent reduction in premiums would lead to only a 2 to 3 percentage point increase in the share of employers offering insurance. Employers of low-wage workers are substantially less likely to offer health insurance than other employers.

Conclusions: Policies to reduce the number of uninsured that focus on increasing the supply of employment-based insurance are unlikely to have the intended effect unless coupled with policies to help low-wage workers afford insurance.