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New Evidence of Worsening Problems: Falling Employer-Based Coverage

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The United States’ already-fragmented health system seems to have worsened. Premium costs have risen more rapidly than inflation in all but one of the last ten years, and in the last three years they have risen at double-digit rates. Employers have responded by passing on health insurance costs to their employees, especially for dependent coverage. States have struggled to manage burgeoning Medicaid enrollment. These trends have led to declining coverage rates and higher costs for those who maintain coverage, according to our new study.

At the Center for Economic and Policy Research, we conducted an analysis of trends in health coverage using the Census Bureau’s Survey of Income and Program Participation. These data allow for better tracking of coverage than data sources usually used for assessing the nation’s number of uninsured, the Current Population Survey. Our findings are disturbing.

Already, nearly two in five Americans under age 65 are not covered by the employer-based system. At some point in 2002 (the last year for which we have data), nearly 113 million Americans did not have health insurance from an employer. In fact, nearly 70 million Americans were without any health insurance at some point during the year. These numbers are staggering, and they point to a serious problem in access to health insurance coverage in the United States.

A major contributor to this escalating problem is growing weakness in the employer-based coverage system. Cost-sharing for employer-based health insurance is now nearly universal. Today, nearly all workers covering a dependent family member must pay at least part of the costs of this coverage. Employees’ costs for dependent coverage have risen nearly four times as fast as for their own health insurance coverage.

As costs have risen, coverage has fallen. Since the peak of the 90′s economic boom, over 3 million Americans under age 65 have lost their employer-provided health insurance. Most of them—especially children—were dependent on another family member’s employer-based plan. Now, just over two-thirds of children with health insurance are dependents on their parents’ employer-provided plan (69.2 percent)—a decline of 6.5 percent since 1999.

Dependent coverage is critical to ensuring access to health insurance for adults as well. Of all adults who have health insurance, nearly one-third (31 percent) receive it as a dependent on another family member’s employer-provided plan. Dependent adults are disproportionately women.

Because access to health insurance coverage is based on having a “good job,” many workers are left out of the employer-provided health insurance system. Less than half (47.3 percent) of low-wage workers had employer-provided health insurance over the entire year from either their own employer or a family member’s. In contrast, nearly all high-wage workers (89.7 percent) are covered on an employer-based plan.

Access to health insurance from employers is uncommon among Latinos and young adults (ages 18 to 25), mostly because they are less likely to have the kinds of jobs that offer this benefit. In 2002, only one-third (33.6 percent) of Latinos and 43.9 percent of young adults had health insurance from an employer—their own or a family member’s—all year. And this is not because they are choosing to go without: less than six percent of both Latinos and young adults without health insurance say that they either don’t want it or don’t need it.

High costs and lower rates of coverage have meant that the children of many low-wage workers are unable to access employer-based coverage. Some of these children are now going without: compared to a decade ago, more children are uninsured, yet living with a family member with employer-provided health insurance.

At the same time, many more children of low-wage workers are on Medicaid. Now, over one-in-ten children (11.1 percent) living with a family member who has employer-provided health insurance is on Medicaid. This share is more than double that of a decade ago.

The shift towards Medicaid was enhanced by the 1997 introduction of the State Children’s Health Insurance Program, which allowed children of the working poor to become eligible for Medicaid or similar, state-based programs. Even so, this expansion was insufficient to overcome the loss of employer-provided insurance, according to our research. In 2002, 14 percent of all children were on Medicaid, up from 10.6 percent in 1999. However, the share of children without health insurance also rose: in 2002, less than three quarters (71.4 percent) of children had health insurance all year, down from 74.9 percent just three years earlier.

The shift toward Medicaid is adding to the financial stress in the states, many of which have faced record budget deficits in recent years. Rising costs, combined with fiscal constraints from the recession and budget crisis, have led many states to cut eligibility for their health programs, increase cost-sharing, limit medical procedures covered, and even freeze public health programs to contain costs.

An employer-based health insurance system works – when everyone has a “good job” or lives with someone who has one. However, as health care costs skyrocket and coverage of employees and their families frays, reliance on this voluntary, ad hoc system becomes less viable.

Polls show that most of us consider the uninsured a problem: by nearly two to one, Americans would prefer a universal health insurance program where everyone is covered to the current system. We must make this choice: affirmatively move toward a system that covers everyone or maintain the status quo that leaves more, and more vulnerable, people without essential coverage for health care.

Dr. Heather Boushey is a research economist with the Center for Economic and Policy Research in Washington, D.C.

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