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Subsidies of out-of-pocket health insurance premiums must be large to affect employee enrollment decisions

About four out of five workers offered health insurance by their employers take it. Workers apparently make these decisions based more on out-of-pocket premium cost, a price they observe directly, than total premiums, according to a new study. Thus, any additional government subsidies will have to be substantial relative to out-of-pocket price to induce large numbers of workers not currently taking employer-sponsored insurance (ESI) to do so. These subsidies should be most effective in inducing ESI take-up if targeted at low-income workers, concludes Jessica S. Banthin Ph.D., of the Center for Cost and Financing Studies, Agency for Healthcare Research and Quality.

Dr. Banthin and her colleagues used linked data from the 1996 Medical Expenditure Panel Survey Household and Insurance Components to analyze data on ESI takers and decliners. Takers were significantly more likely to be male, work full-time, belong to a union, and work in public administration or the public sector. Takers were less likely to have a spouse who received an ESI offer or to work in sales or the service sector.

On average, decliners faced much higher out-of-pocket premium costs—85 percent and 32 percent higher for singles and families, respectively—than workers who took ESI. Single workers were significantly more likely to take up an employer's offer of coverage if they had a health problem of some kind. Also, the likelihood of accepting ESI increased significantly with income.

Lower income workers were more sensitive to price than higher income workers. Family candidates were more sensitive to price than were singles, and this may help explain why employers pay higher percentages of premiums for single workers on average. Employers may strategically lower employer shares to induce two-earner family candidates to elect family coverage from other employers, thus lowering total employer premium contributions.

See "Worker decisions to purchase health insurance," by Linda J. Blumberg, Ph.D., Len M. Nichols, Ph.D., and Dr. Banthin, in the International Journal of Health Care Finance and Economics 1, pp. 305-325, 2002.

Reprints (AHRQ Publication No. 02-R051) are available from the AHRQ Publications Clearinghouse.

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