Employer-sponsored health coverage persists post-ERISA

Although most workers today take employer-sponsored health coverage for granted, it really didn’t become a widespread benefit until as recently as World War II.

“The commitment of employers to worker health was initially driven by practical needs,” said Paul Fronstin, Ph.D., director of health benefits research for the Employee Benefit Research Institute. “The formalization of health coverage during World War II, facilitated by wage controls and subsequent tax regulations, set the stage for the widespread adoption of health benefits by employers. This framework was reinforced by the passage of ERISA, which provided a consistent regulatory environment for employee benefit plans.”

The enactment of both ERISA and the Affordable Care Act have had an impact on employment-based health coverage over the past 50 years. Research by the institute identified several trends since ERISA became law:

• The percentage of the non-elderly population with employment-based health benefits was at or near 70% from 1970 to 1989. By 2023, 60% of the non-elderly population had employment-based health coverage.
• In 2023, employment-based health coverage continued to be the most common source of coverage among the non-elderly population.
• The percentage of employers offering health benefits was at a near-record low in 2023, with less than one-half of employers offering health benefits in that year. However, it is important to put this number in context. During the same period, 2000 was the year with the greatest percentage of employers offering coverage at 59%. The percentage has ebbed and flowed over time.
• The erosion in the percentage of employers offering health coverage has been limited to small employers. Between 1996 and 2023, the percentage of employers with 1,000 or more employees offering health benefits increased from 96.7% to 97.6%. Similarly, the percentage of employers with 100 to 999 employees offering health benefits increased from 92.7% to 95.6%. In contrast, among employers with 25 to 99 employees, the percentage offering health benefits decreased from 80.8% to 76.7%. It decreased from 64.9% to 51.8% among employers with 10 to 24 employees, and it decreased from 34.2% to 22.5% among employers with fewer than 10 employees.
• The overall percentage of employers offering coverage is heavily influenced by the fact that small employers are in large part responsible for the decline in coverage, and most employers in the United States are small.
• Despite the overall decline in the percentage of employers offering health coverage, the percentage of workers employed by private-sector employers who were eligible for health benefits (the eligibility rate) has been mostly constant since 1996, varying from a low of 75.4% in 2014 to a high of 81.3% in 1996. The eligibility rate has not changed much because, despite the fact that most employers are small, the majority of workers are employed by large firms.

Related: Small employers are underserved by the employee benefits industry, time for change

Despite predictions of a decline, the employment-based health coverage system has demonstrated continued resilience.

“Regardless of the historical debate, employers today offer health coverage because of their belief that offering it has a positive impact on the overall success of the business,” Fronstin said. “And it can be argued that ERISA’s preemption of state law has created an environment of national uniform standards for employee benefit plans, thus giving employers the regulatory means to continue to offer health benefits as they do today.”

The ACA prompted a debate about its potential impact, yet predictions that employers would reduce their health benefit offerings have not fully materialized. The recent data indicate that, although the percentage of employers offering health benefits has declined, the eligibility rates for coverage among workers have remained relatively stable. This stability is largely because of  the continued prominence of large firms, which are more likely to offer health benefits.

“While the landscape of employment-based health benefits is evolving, it remains a cornerstone of the American health insurance system,” Fronstin concluded. “The persistence of this model, despite shifting economic pressures and regulatory changes, highlights its role in providing health coverage. Moving forward, addressing the disparities between small and large employers and adapting to evolving work force trends will be crucial in maintaining the efficacy and accessibility of employment-based health benefits.”