The Effect of Premiums on the Small Firm's Decision to Offer Health Insurance

Many small firms (fewer than 50 employees) do not offer health insurance. We investigated the role of premiums in the small firm's decision to offer health insurance, using data from a 1993 survey of 2,000 small firms in Minnesota. Selectively-corrected equations were estimated to predict the premiums faced by firms offering and not offering insurance. The elasticity of demand for health insurance, calculated at the mean of the data, was -3.91 for single coverage and -5.82 for family coverage. We contrast these results to the much lower responsiveness found in experimental studies and suggest that our findings are more likely to model the small firm's demand for health insurance.