Half of Decline in Health Coverage Due to Lack of Employer Sponsorship

October 20, 2006 (PLANSPONSOR.com) - A newly released report from the Kaiser Commission on Medicaid and the Uninsured claims that almost half of the decline in employer-sponsored health insurance coverage can be attributed to a loss of employer sponsorship.

According to the Issue Paper, between 2001 and 2005 the percentage of employees covered by employer-sponsored health insurance declined from 81.2% to 77.4%. The decline in coverage was greatest among poor and near-poor employees, employees of small businesses, and employees under age 35.

While half of the decline was due to loss of employer sponsorship, a quarter of the decline was due to loss of eligibility for employer-sponsored insurance and loss of access to coverage as a dependent of a covered employee, the report said. The other quarter of the decline was due to employees not participating in the health benefit plans offered by their employers.

The Commission found an underlying factor for these reasons for the decline in coverage is workforce changes. Between 2001 and 2005, 5.1 million adults left the workforce and another 1.4 million became unemployed, not by choice, which resulted in those workers losing access to coverage. In addition, by 2005 more workers belonged to families with incomes below the poverty level and families supported by part-time workers only. More workers were self-employed or working in part-time or temporary positions as well, the report said. More workers also were employed by small businesses, which are less likely to sponsor a health benefit plan, as the share of employees in large firms decreased from 66% to 64%.

Cost was another factor for loss of health coverage. Between 2001 and 2005 health insurance premiums grew between 9.2% and 13.9% annually for a family of four. While the percentage of premiums employees were required to pay remained relatively flat, the amount employees had to contribute to their own insurance increased due to the increase in premium amounts, making it likely some employees would decline coverage. Additionally, perhaps due to cost, the share of all businesses offering health benefits declined from 69% in 2000 to 60% in 2005, marked by a greater decline among small to mid-size companies.

The Issue Paper reveals key findings of a soon-to-be-released report by Urban Institute researchers. The Issue Paper is here .