An Analysis of the Dynamics of Health Insurance Coverage and Implications for Employer-Mandated Insurance

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Over the last several years, there has been a lot of attention paid to the increasing number of Americans without health insurance. News reports often discuss the 45 million people—representing 16 percent of the population—who are uninsured. The increasing number of uninsured Americans is a concern because these individuals are less likely to receive adequate medical care. For example, studies have shown that the uninsured are three times more likely than those who are insured to delay seeking health services due to their expense.

Most current estimates of the uninsured, however, are point-in-time estimates that fail to fully grasp the dynamics of insurance coverage. For a host of factors—not the least of which is the dependence on the labor market for the provision of a large portion of health coverage—health coverage for many Americans is very volatile. As a result, point-in-time estimates potentially underestimate the number of uninsured and fail to provide the information necessary for crafting effective health care policies. For example, if the majority of the uninsured lost insurance because they frequently switched jobs, then a law mandating employer-provided coverage, such as California’s recently defeated Proposition 72, would do little to assist them.

This study, by Drs. Robert Fairlie and Rebecca London, uses paired samples from multiple years of the Current Population Survey (CPS) to explore the dynamics of health coverage in the United States. In particular, it estimates the factors that cause an individual to gain or lose coverage from year to year. These dynamics are critical for the creation of constructive policies to increase access to health coverage.

In their study, the authors found that employer size plays a crucial role in insurance status. While most health insurance mandates exempt small employers, the authors found that “it is precisely these [small] firms that are associated with the higher rates of insurance loss and the lowest rates of gain.” As such, policies that ignore these firms will be unable to effectively increase coverage. The authors also found that the unemployed suffer lower rates of insurance gain and higher gains of insurance loss from year to year. Again, mandated health insurance policies—because they affect only those who are in the labor force—can do little to help the unemployed uninsured.

Health Insurance Transition Rates
According to the CPS, 85.6 percent of adults had health insurance in the first year studied and 7.5 percent of these individuals lost coverage in the subsequent year. Examining the 14.4 percent who were uninsured, we see that 46.2 percent of those adults gained health insurance by the end of the following year.

Breaking out these transition rates for various groups, the authors found that skill level had a significant effect on insurance status. Specifically, high school dropouts are 28 percent less likely to be covered than college graduates, and 18 percent less likely to be covered than high school graduates. More than one-third of these high school dropouts (compared to 14.4 percent of the total adult population) are uninsured and only 34.4 percent of these uninsured dropouts get coverage in the subsequent year (compared to 46.3 percent of all adults).

Overall, minorities have lower rates of coverage than whites. For example, African Americans have an insurance rate of 80.5 percent compared to 89.2 percent for white, non-Latinos. This difference is due almost entirely to a higher rate of insurance loss between the two years—with African Americans facing an insurance loss rate double that of whites.

Employment Status and Insurance Coverage
Perhaps unsurprisingly, employment status is a critical factor in coverage. In total, those working full-time and full-year have the highest rate of insurance coverage and gain, and the lowest rates of insurance loss. The authors found that “any part-time, part-year or unemployed period is associated with lower rates of health insurance gain.” For example, 38.3 percent of the individuals who spent the entire first year unemployed were uninsured (compared to 14.4 percent of the population). Nearly 18 percent of insured but unemployed adults lose coverage within the year. Overall, the authors found that unemployment and part-time status are associated with lower rates of insurance coverage and gain.

Employees losing their job in the first year experienced a 19.9 percent decline in health insurance coverage. In addition, gaining a job between the two years caused a 16 percent decrease in insurance coverage—most likely as a result of a waiting period for new coverage and the end of stopgap health coverage such as Medicaid or COBRA. These results show that frequent job switching would be expected to result in lower coverage rates. Most mandates have a waiting period (normally three months) and don’t cover unemployed adults—making them generally ineffective at improving coverage for these individuals.

Employer Size and Insurance Status
Employer size is one of the largest determinants of insurance gain. Uninsured individuals at small firms are least likely to gain insurance from year to year. In addition, those moving to employment in a small firm have the lowest rates of insurance gain, with only 32 percent of these individuals gaining insurance, compared to 68 percent of those moving to a large firm.

The correlation between insurance loss and employer size is equally striking. Employees working in the smallest firms have the highest likelihood of insurance loss compared to those at larger firms. Movement into employment at a small employer is associated with higher than average rates of health insurance loss and much higher rates than those faced by employees moving into employment in a large firm. All of these estimates are consistent with small firms being less likely to provide benefits or providing less attractive coverage (either in terms of cost or choices) than large firms. Many of the proposed employer mandates, including Proposition 72 in California, exempt these small businesses from their requirements.

Policy Implications
Overall, the authors find that groups such as high school dropouts, the unemployed, and those working at small firms (1–9 employees) have the highest risk of insurance loss from year to year. These factors are important because recent attempts to mandate employer-provided coverage exempted both employees of small firms and those that work few hours and, as a result, appear to miss a large portion of the uninsured. In addition, the very nature of attempting increase coverage by utilizing the labor market ignores the unemployed, despite the fact that this research “indicates that the unemployed are one of the groups at highest risk of health insurance loss.”
Before moving forward with policies designed to address the problem of the uninsured, it is important that elected officials and policymakers fully understand the underlying dynamics of gains and losses in insurance as described in this paper. This research shows that certain demographic and employment groups have alarmingly low insurance rates and that the provisions of mandates such as Proposition 72 “exempted or excluded some of the most at-risk groups.” The authors do state that these groups may have been exempted because it is difficult to create a mandate that reaches small employers and part-time employees without destroying job opportunities.