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Work, Offers, and Take-Up

Decomposing the Source of Recent Declines in Employer-Sponsored Insurance

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Document date: May 17, 2004
Released online: May 17, 2004

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report, including all tables and charts, is available in its entirety in the Portable Document Format (PDF).

The National Bureau of Economic Research (NBER) determined that a recession began in March 2001 (NBER 2001). And while NBER also determined that the recession officially ended in November of 2001, the economy continued to be sluggish well past that time, particularly in employment. Evidence showed that the rate of insurance coverage also decreased during that period, primarily because of a drop in the rate of employer-sponsored insurance (ESI) coverage (Holahan and Wang 2004). Previous research has not explored, however, the factors underlying the decline in ESI that occurred during this economic downturn.

Although the employment rate clearly declined for the population as a whole during this time period, the probability of being offered health insurance and the probability of taking up the coverage offered are also factors affecting the likelihood of ESI coverage. This analysis assesses how these components of coverage changed during the economic downturn. We examine how these changes varied for unmarried adults, married adults, and dependent children, and assess how much of the decline in coverage that coincided with the downturn was attributable to changes in employment rates versus changes in offer rates versus changes in take-up rates. We also determine how the changes over this period differed for low-income and higher-income populations, and how changes in the components of coverage varied by employer size.

The next section describes the data used for this study and defines the key analytic variables. The third section provides a detailed explanation of the methodological approach taken. The fourth section presents the empirical results, and the fifth provides a summary of the results and conclusions of the analysis.

The key results from this analysis are summarized in the table and bullets below.

Summary of Main Results (percent)
in ESI
Share due to
changes in
Share due to
changes in
offer rates
Share due to
changes in
Share due
to other
All -2.2%** 27.8% 7.2% 64.4% 0.6%
< 200% of FPL -4.6%** 26.1% 24.2% 48.1% 1.7%
> 200% of FPL -1.3% -8.9% 12.2% 91.0% 5.6%
  1. There was a sharp drop in ESI coverage between 1999 and 2002. In 1999, 69.2 percent of the nonelderly population had employer-sponsored insurance coverage. In 2002, the ESI coverage rate had fallen to 66.9 percent, a change of 2.2 percentage points. Had the rate of ESI coverage stayed at 1999 levels, 5.9 million more individuals would have had coverage in 2002 than was actually the case.
  2. All three groups-dependent children, unmarried adults and married adults-experienced declines in ESI. Dependent children had the largest declines (3.1 percentage points), followed by unmarried adults (2.3 percentage points) and married adults (1.7 percentage points).
  3. Almost two-thirds of the decline in ESI for the overall population was attributable to the decrease in the likelihood of taking up an employer offer. Take-up rates declined by 1.7 percentage points for unmarried adults, 1.0 percentage point for married adults, and 3.5 percentage points for dependent children.
  4. Most of the remaining loss of ESI was the result of a reduction in the likelihood of work, which accounted for almost 30 percent of the decline. The probability of not working increased by 1.9 percentage points for unmarried adults. The probability that a child had no working parent increased by 1 percentage point.
  5. Declines in ESI coverage were particularly sharp for the low-income population. ESI coverage for the low-income nonelderly population fell by just under 5 percentage points. This amounts to a decline of about 12 percent, substantially larger than the drop (less than 2 percent) experienced by the higher-income nonelderly population.
  6. The low-income population was affected by a reduced likelihood of work, fewer offers, and lower take-up rates. For the low-income population as a whole, the decline in take-up accounted for about 48 percent of the decrease in the rate of ESI. The drop in work accounted for about 26 percent of the change and reduced offer rates for about 24 percent.
  7. The share of low-income people with at least one adult in the immediate family employed by an establishment fell by 3.1 percentage points. Low-income unmarried adults experienced the largest decline in establishment-based work (3.7 percentage points, compared with roughly 2.5 percentage points for married adults and children).
  8. The share of low-income persons with at least one employer offer in the family fell by 2.7 percentage points. The largest decline in offer was experienced by married adults (4.8 percentage points). The declines in take-up rates for low-income Americans were even more dramatic, falling by 5.8 percentage points. Take-up rates by unmarried adults fell by 4.7 percentage points, and for children by 8.9 percentage points.
  9. The decline in ESI coverage for higher-income individuals fell by just over 1 percentage point between 1999 and 2002. Only take-up declined significantly for this income group overall, dropping by 1.5 percentage points. Unmarried adults in this income group experienced a decline in offers, whereas married adult and children's take-up rates declined.
  10. There was a shift in work from large to small employers, where the likelihood of ESI coverage is lower. The probability of working for a small employer increased and the probability of working for a large employer declined for unmarried adults. There was also a modest increase in the probability of working in government for this group. At the same time, offer rates declined in small establishments. Thus, while employment of unmarried adults was shifting to small establishments and government, the offer rates for those workers were falling. For those working in small establishments, there were also declines in take-up rates of over 5 percentage points.

These results suggest that increased unemployment, reduced offers of coverage, and declining take-up rates all contributed to the decline in employer-sponsored insurance. Declines in employment will directly affect the share of the population with employer-sponsored insurance. Declines in employer offers occur primarily within small firms, but also reflect shifts from full-time to part-time work and from employment in large establishments to small establishments. The declines in take-up are consistent with the reductions in employer contributions to employee health insurance premiums shown in the National Survey of America's Families and surveys of health benefits sponsored by the Kaiser Family Foundation (Holahan 2003; Gabel et al. 2003). Declines in take-up rates are also consistent with earlier studies that have shown declines in take-up of employer offers from the late 1980s to the late 1990s (Farber and Levy 2000; Cooper and Schone 1997).

Note: This report, including all tables and charts, is available in its entirety in the Portable Document Format (PDF).

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