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Employee characteristics affect the generosity of health plans and the likelihood of employers offering a choice of plans

Most individuals with private health insurance in the United States obtain it through their employer. Employee characteristics do affect the generosity of the health plans offered by employers and the likelihood that they offer a choice of plans, according to a new study. It found that employers with a greater proportion of high-wage workers were more likely to offer more generous plans, and those with workers with more varied health risks and wages were more likely to offer a choice of plans. Nevertheless, the overall effects of worker characteristics on plan offerings were quantitatively small, notes M. Kate Bundorf, Ph.D., of Stanford University School of Medicine.

With support from the Agency for Healthcare Research and Quality (National Research Service Award training grant T32 HS00009), Dr. Bundorf developed a theoretical model to examine the relationship between the preferences for health insurance among employees within a firm and the health benefits offered by employers. The model developed a measure of plan generosity based on plan characteristics, and expected health expenditures were used as proxies for worker preferences for coverage (for example, prior high health expenditures would indicate less healthy employees and a preference for greater coverage).

Interactions within the models revealed that both worker wages and firm size were positively correlated with the probability of offering health insurance. Larger firms were more likely to offer health insurance and to offer more generous plans and a choice among plans. Shifting the distribution from all workers earning less than $10,000 to all earning over $20,000 was associated with an increase in average plan generosity of $56 or 5 percent of the average value of plan generosity and an increase in average predicted probability of offering a choice of plans from 0.19 to 0.23 among study firms. Mean employee health risk had a small but significant negative effect on average plan generosity, while variation in health risk had a positive effect. Better data on individual workers within a firm may generate stronger results.

More details are in "Employee demand for health insurance and employer health plan choices," by Dr. Bundorf, in the Journal of Health Economics 21, pp. 65-88, 2002.

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