Employee Health Insurance

Approximately 84 percent of the United States population has some type of health insurance coverage. This coverage comes from one of five sources: (1) health insurance provided by an employer, (2) individual insurance policies purchased in the private market, (3) Medicaid (the government program for low-income families), (4) Medicare (the government program for disabled persons and elderly persons), and (5) military or veterans insurance. Figure 1 shows the percentage of individuals with each type of insurance, by age, for individuals between 25 and 64 years of age. Individuals age 65 and older (not shown in the graph) are eligible for Medicare and thus have the highest rate of insurance, with 98.9 percent of this population covered by insurance. Less than 14 percent of individuals age 45 to 64 are uninsured, compared to over 16 percent of individuals age 35 to 44, and over 22 percent of individuals age 25 to 34. Thus the rate of insurance is quite high for the elderly and near-elderly, relative to younger adults.

The type of insurance coverage varies dramatically with age, with the youngest and oldest workers being least likely to receive coverage from employer-based insurance. Only 65 percent of individuals age 55 to 64 receive employer-provided health insurance, compared to 74 percent of individuals age 45 to 54. These older individuals (age 55 to 64) counter this lack of employer-provided insurance with a greater reliance on the individual insurance market. Over 8 percent of the near-elderly purchase individual insurance, almost twice as many as in other age groups. Finally, Medicare is an important provider of insurance for those age 55 to 64 as they begin to experience escalating health problems, with almost 6 percent qualifying for Medicare because of disability.

The average rate of insurance for individuals nearing retirement age masks some important differences experienced by subgroups of this population. Richard Johnson and Stephen Crystal (1997) did a detailed breakdown of insurance coverage for a sample of 12,000 individuals age 53 to 64 who were interviewed about their health and insurance in 1992, and again in 1994. In their sample, 75 percent of the individuals in this age group were covered by employment-based insurance, 9 percent had no insurance coverage, and the other 16 percent were covered by government insurance (including Medicare and Medicaid) or privately purchased insurance.

While Johnson and Crystal found no gender differences in the prevalence of coverage by employer-provided insurance, 11 percent of women in the sample had no insurance, compared to only 7 percent of men. However, this gender difference is primarily related to differences in marital status rather than gender itself. Women are less likely to be currently married, and married couples are significantly more likely to be covered by insurance than individuals who are not married (8 percent of married individuals have no insurance, compared to 16 percent of divorced, 17 percent of widowed, and 12 percent of never-married individuals). These differences in insurance coverage by marital status are directly related to employment-based insurance. Seventy-eight percent of married individuals are covered by employment-based insurance (either their own or their spouse's) compared to only 55 to 60 percent of those not currently married.

Race and education also play a role in whether an individual has employment-based insurance, other insurance, or no insurance at all. African Americans are more than twice as likely to have no insurance coverage than whites (14.2 percent compared to 7 percent), and Hispanics are almost four times as likely to have no insurance than whites (27.7 percent compared to 7 percent). Similar differences can be seen in coverage by employment-based insurance (78 percent of whites have employment-based insurance compared to 62.8 percent of African Americans and 48.8 percent of Hispanics). The more education an individual has, the less likely there will be no insurance coverage and the greater the likelihood of employment-based insurance. For example, 23.2 percent of individuals who have no high school education have no insurance and 43.8 percent of these individuals have employment-based insurance, while only 4.2 percent of those with a college degree have no insurance and 85.4 percent have employment-based insurance.

It is also informative to examine how employer-provided insurance varies by the type of employer. Just over half of all firms (52.4 percent) offer some form of major health insurance plan. Firms in the manufacturing industry are most likely to offer insurance (68.4 percent), while those in agriculture, forestry, and fishing are least likely to offer it (21.6 percent). Large firms are much more likely to offer insurance than small firms are, so while only 52.4 percent of firms offer insurance, those firms that do offer insurance employ 85.7 percent of the workers in America. For example, 98.2 percent of firms with more than one thousand employees offer insurance, compared to only 63.5 percent of firms with ten to twenty-four employees and 32.9 percent of firms with less than ten employees.

There are three primary types of insurance plans that are offered by employers: fee-for-service plans, health maintenance organizations (HMOs), and preferred provider organizations (PPOs). Under a fee-for-service plan, health care providers are reimbursed based on the care they provide, with the patient usually required to pay either a deductible or co-payment (a percentage of the total cost of care). Fee-for-service plans offer patients the greatest flexibility, as there is often no restriction on what doctor a patient can see. Under HMO insurance, the HMO receives a fixed amount of money per person enrolled, regardless of the actual care provided. This provides an incentive for HMOs to consider not only the health benefits of providing a test or procedure, but also the financial costs. Patients are required to see only doctors who are included in the plan (unless the patient is referred to a specialist by a doctor in the HMO) in order to have insurance pay for the visit. PPOs are similar to HMOs in that patients have a certain network of doctors that they can see; however, patients do have greater flexibility because if they choose to see a doctor who is not a part of the network their insurance will still pay a portion of the cost of the visit.

Johnson and Crystal found that workers age fifty-three to sixty-four who are receiving employer-provided insurance are fairly evenly split between the three types of plans (29 percent have an HMO, 28 percent have a PPO, and 40 percent have fee-for-service). Firms with fewer employees (particularly less than fifteen employees) who offer health insurance are more likely to offer fee-for-service than either a HMO or PPO. While some employers offered employees the choice of more than one type of plan, less than half of those covered by employer-provided insurance had such a choice (42 percent) and most of those who did have a choice were in large firms or were making high hourly wages. The amount that employees had to contribute towards premiums (cost-sharing) was very similar across all three types of plans.