How the economy affects employer-sponsored health care coverage
After declining steadily since 2008, the percent of businesses offering health insurance has increased. Why?
The health care industry has been chaotic over the last decade, to put things mildly. Between soaring prices and a deluge of government regulations, employer-sponsored health coverage looks very different than it did 10 years ago. In fact, the pressures placed on employers caused many to drop coverage during that time. After declining steadily since 2008, the percent of businesses offering health insurance saw its first increase between 2016 and 2017.
Related: As costs rise, employers drive change in health care delivery
What’s responsible for the increase? That was the topic of a recent EBRI webinar, Trends in Employment Based Health Coverage. Using data from the Medical Expenditure Panel Survey–Insurance Component and Current Population Survey, as well as its own data, EBRI director of health research Paul Fronstin explored the various factors affecting health care coverage.
“In 2008, about 56 percent of private sector establishments offered health insurance coverage,” Fronstin said, noting a combination of factors contributed to the declining trend. “When the ACA passed, there was a lot of expectation that employers would start to drop coverage. We were just coming out a recession-we didn’t necessarily know we were coming out. Unemployment was relatively high. Employers offer health benefits to be competitive, but with 10 percent unemployment, they don’t necessarily have to.”
The data suggests that an employer’s decision to offer health insurance is influenced greatly by the economy and the need to compete for talent. When you break the data apart and look at employer-sponsored health insurance by employer size, some different trends emerge. While the percentage of small employers offering coverage has fallen just about every year, larger employers, who are better able to weather economic turmoil, have held constant around 99 percent.
“For specific size categories, you see this change starting to take place earlier,” Fronstin said. “Between 2014 and 2015, the percentage of mid-sized employers offering coverage increased.” Other size categories followed suit–in 2016, small-to-mid-sized employers saw an uptick in coverage.
“When you turn to what’s happening with workers, the percentage of workers who are eligible for coverage is changing,” Fronstin explained. “One of the things going on has to do with where the jobs are.”
Fronstin noted three shifts in employment: a drop in percentage of workers employed on a self-employed basis; an increase in percentage employed at larger firms; and a reduction in workers employed on a part-time basis. “I think this is a primary driver of what we see with employer health benefits in the workplace, he said. “I would argue that it’s this business reason which is why employers continue to offer health insurance. Despite the fact that many expected employers to pull out of health benefits after the passage of the ACA and the exchanges, that never materialized.”
So large firms will continue to offer health insurance, regardless of economic or regulatory factors, but for small businesses, it’s a different story.
“The cost of health insurance has remained a critical issue for small business owners,” noted Holly Wade, director of research and policy analysis for NFIB. More than half of small business owners who don’t offer insurance say that it’s because it’s too expensive; 17 say it’s because employees can purchase their own.
The increases in health insurance costs have been a lot harder for small businesses to digest. More than half of those surveyed (52 percent) have taken a hit on their profits to cover rising costs, and they’re also employing a number of cost-shifting measures.
“The cost-sharing portion of premiums has shifted in the last 10 to 15 years,” Wade noted. “Fifteen years ago, we saw a far greater share of small business owners absorbing 100 percent of the cost of premiums.”
Now, not only has the economy sparked a renewed need for competitive benefits, for many small businesses, it’s also put many companies in a better position to offer benefits financially. “As these firms become more mature and have a more stable foundation, that may also be why we’re seeing an increase in offer rates,” Wade said. “We’ll see in the next few years if that starts to increase and continues as these new firms mature.”
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