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Worker preference may contribute to poorer health insurance coverage by small firms

It has long been assumed that small firms are less likely to provide health insurance coverage to workers than large firms because of the economic burden of insuring their workers. However, a new study finds that many workers seeking employment at firms not offering coverage may not place a high priority on health insurance as part of the overall benefits package. They would rather have higher salaries. Thus, reforms to expand coverage in the small group health insurance market may face limited success, conclude Alan C. Monheit, Ph.D., and Jessica Primoff Vistnes, Ph.D., of the Agency for Healthcare Research and Quality.

Using data from the 1987 National Medical Expenditure Survey, the authors examine whether single workers with weak preferences for health insurance sort themselves into jobs without coverage. Preferences are measured according to responses to the statements "I'm healthy enough that I don't need health insurance," "Health insurance is not worth the cost," and "I'm more likely to take risks than the average person." Descriptive analyses for a sample of single workers suggest that sorting by preferences for health insurance takes place, since workers with weak preferences for coverage were more likely than workers with strong preferences to take jobs that did not offer coverage.

The authors also test the preferences hypothesis by applying a model of job choice, which includes preferences for health insurance and controls for correlates of a worker's wage level, expected medical care expenditures, costs of searching for jobs, labor market conditions, and area medical care costs.

Econometric analysis confirms the fact that single workers with weak preferences for coverage are more likely to take jobs without coverage and that preferences may be as important as other worker characteristics in explaining the insurance status of uninsured workers with weak preferences for coverage. Drs. Monheit and Vistnes also find that workers who believe that their health status does not warrant coverage do incur lower health expenditures and report themselves to be in better health than workers with strong preferences for health insurance. Their analysis of sorting behavior suggests that efforts should be focused on creating incentives that raise the value of health insurance to targeted groups of small firm employees.

See "Health insurance availability at the workplace: How important are worker preferences?" by Drs. Monheit and Vistnes, in the Journal of Human Resources 34(4), pp. 770-785. Reprints (AHRQ Publication No. 00-R013) are available from the AHRQ Publications Clearinghouse.

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