Price and Spouse's Coverage in Employee Demand for Health Insurance

The decline in health insurance coverage over the last two decades is a matter of national concern. The vast majority of insured individuals under age 65 obtain this coverage from their employer or as a dependent of a family member with group-sponsored health insurance. Recent evidence suggests that the decrease in coverage among full-time workers has resulted not so much from declining employer offers but rather from reduced take-up. The reasons for this change in employee behavior are not yet understood. Resolving this question is important for public policy because the two most likely explanations - the rise in employee insurance premiums and the increase in spousal coverage over this period - have different policy implications. We pool data from five supplements to the Current Population Survey covering the period 1988-2001 to examine the roles of insurance price and spousal coverage in decisions to elect employer-based coverage. We estimate the demand for employer-based health insurance among eligible workers as a function of price (measured as employee's share of total premium costs), firm size, employee characteristics, labor force status of spouses and, among working spouses, coverage under own employer plans. We find that the decisions of eligible full-time wage and salaried married workers to elect coverage are significantly influenced both by the costs of their own plans and by whether their spouses are covered under their own employment-based plans. We also find that women are considerably more responsive than men to both cost and spouses' coverage. Our findings provide the first evidence that price matters in the take-up decisions of full-time married workers, and that part of the decline in take-up in recent years may be attributed to the increasing cost of insurance. This decline is also explained, however, by the increase in the proportion of full-time workers whose spouses are covered under their own employer plans. Whether this latter trend is itself an outcome of rising insurance price remains to be determined