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Investigating Employer-Sponsored Insurance Trends in the US

March 10, 2011
Bloomington, Indiana -- Faculty Research Focus Logo

“There are tradeoffs between the two, Simon explains, “an employer can’t give you more in health insurance without cutting wages…it’s the way the market operates.”. . . Kosali Simon

Investigating Employer-Sponsored
Insurance Trends in the US

Kosali Simon

Healthcare reform has been on the forefront of public and political discourse in the United States and with it, the discussion of how Americans will buy healthcare insurance and how much that coverage will cost. Even though the Patient Protection and Affordable Care Act was signed into law in March of 2010, healthcare and health insurance coverage costs are still priority issues and an appreciation of the economic factors underlying many of the proposed policies are often lost amid the heated political dialogue.

Even before the health care reform proposals and the recent economic downturn, the United States had been experiencing a trend of decreasing employer-sponsored insurance (ESI) coverage. Indiana University’s Professor Kosali Simon saw the decline in ESI as a topic on which healthcare economics research could shed light.

In "Declines in Employer-Sponsored Coverage Between 2000 and 2008: Offers, Take-up, Premium Contributions and Dependent Options,” Simon, along with co-authors Jessica Vistnes, Alice Zawacki, and Amy Taylor, set out to investigate the decline in ESI. Working with the Census Bureau’s Center for Economic Studies, Simon and colleagues examined ESI rates as a way of “establishing a baseline for observing the effects of the current economic downturn and the implementation of health insurance reform.”

Overall, a decline in ESI coverage is a major issue in determining health insurance rates as, according to Simon, ESI is “the predominate form of health care insurance.” About 62% of all Americans under 65 get employer-sponsored healthcare insurance, about half of which is dependent coverage. Because of the high percentage of Americans covered by ESI, whether or not employers should be required by law to provide insurance has also become a hot topic in the U.S. policy debate. However, Simon explains that these debates often don’t reflect the economic insight on who pays an employer’s decision to provide healthcare insurance.

According to Simon, arguments for mandating employer-provided insurances often overlook the economic trade-offs between wages and benefits that a business faces when determining whether to provide insurance. Economic theory posits that a worker gets a total amount of compensation, some in wages and some in benefits. “There are tradeoffs between the two, Simon explains, “an employer can’t give you more in health insurance without cutting wages…it’s the way the market operates.” Market forces allow employees to make their own economic choices based on what they prefer—higher wages and fewer benefits or lower wages and increased benefits, such as healthcare insurance provision.

During the process of researching the trends in employer-sponsored insurance rates, Kosali and her colleagues also took notice of another trend, the large number of Americans adults covered by dependent care that is contingent upon a spouse’s employer. Simon is currently conducting research into the connection between healthcare insurance and marital status. Little research exists on the link between married adults’ dependent coverage and coverage after a divorce. Access to healthcare can depend on family structure, for children, and for adults and more research would add substantially to the collective knowledge of healthcare and family economics.

As the debate surrounding health reform still rages on, and as the cost of health care keeps rising into the near future, questions in the field of healthcare economics will remain significant areas for research.

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