oversight

Employment-Based Health Insurance: Costs Increase and Family Coverage Decreases

Published by the Government Accountability Office on 1997-02-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Ranking Minority Member,
                 Subcommittee on Children and Families,
                 Committee on Labor and Human
                 Resources, U.S. Senate

February 1997
                 EMPLOYMENT-BASED
                 HEALTH INSURANCE
                 Costs Increase and Family
                 Coverage Decreases




GAO/HEHS-97-35
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-271082

      February 24, 1997

      The Honorable Christopher J. Dodd
      Ranking Minority Member
      Subcommittee on Children and Families
      Committee on Labor and Human Resources
      United States Senate

      Dear Senator Dodd:

      Nearly two-thirds of Americans under 65 years old—some 150 million
      people—have employment-based private health insurance. Although many
      employers remain committed to providing employee and family coverage,
      the percentage of people with private coverage is declining. At the same
      time, the percentage of Americans who are uninsured or rely on
      Medicaid—particularly children—continues to increase. The effect of
      being uninsured on the health of families can be significant. For example,
      uninsured children are less likely than insured children to receive primary
      care, immunizations, and treatment for injuries. The lack of such care can
      lead to health conditions and disabilities that require more costly and
      long-term care.

      Concerned about the decline in employment-based health insurance
      coverage, you asked us to (1) identify any recent trends in
      employment-based private health insurance, particularly for family
      coverage; (2) determine any corresponding changes in the number of
      adults and children with private insurance coverage as dependents; and
      (3) identify the potential effect of these changes, if any, on public costs for
      health care coverage. To answer these questions, we analyzed surveys of
      health insurance coverage conducted by the Department of Labor (DOL)
      and by private benefits consultants, such as KPMG Peat Marwick and
      Hewitt Associates. We also analyzed the Bureau of the Census’ Current
      Population Surveys (CPS) on health insurance coverage for 1989, 1991,
      1993, and 1995. In addition, we discussed trends with experts, insurance
      company executives, and benefits consultants to determine how employer
      practices may have changed in the past several years. We also reviewed
      research reports on private insurance and the health insurance
      marketplace.

      Because more limited information is available on benefit practices at small
      firms (fewer than 100 employees), our report primarily focuses on large
      firms (100 or more employees) and major firms (over 1,000 employees).




      Page 1                                     GAO/HEHS-97-35 Family Health Insurance
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                   For this report, family generally refers to a group of people whom insurers
                   would consider a family for the purposes of health insurance
                   coverage—typically adults related by marriage, parents, and their children
                   under 18 years old.1 (See app. I for more details of our methodology.)


                   Eroding employer financial support for providing health insurance to
Results in Brief   employees’ families has contributed to the overall decline in private health
                   insurance coverage.2 Each year between the late 1980s and 1994, increases
                   in employers’ costs to provide health insurance to their employees and
                   their employees’ families outpaced inflation—with cost growth of
                   18 percent one year. As health insurance reached 10 percent of employees’
                   payroll costs, many employers began to reconsider the amount of support
                   they would provide to employees, particularly for family coverage.

                   Acquiring or maintaining health insurance has become more difficult for
                   some families because of changes that some employers made to their
                   firms’ health coverage. Some employers—particularly smaller
                   employers—dropped coverage altogether. In 1993, over 29 million
                   employees—almost one-fourth of the workforce—were employed by firms
                   that did not offer group health insurance for employees’ families. Most
                   employers continued to offer coverage, but many raised employees’
                   premium contributions significantly—especially for family coverage. In
                   1993, 16 percent of employees in large private firms paid $150 or more per
                   month for family health insurance premiums; 36 percent of state and local
                   government employees paid as much in 1992. Some employers have used
                   other mechanisms, such as financial incentives, that could discourage
                   employees from two-worker families from purchasing family coverage
                   from them.

                   As these changes occurred, the percentage of Americans under 65 years
                   old with private health insurance coverage decreased from 75 percent in
                   1989 to about 71 percent in 1995. Of this general decline, about 70 to 90

                   1
                    Other adults who could be included as adult dependents in our CPS analysis include young unmarried
                   adults under 19 years old or in college who are covered through their parents’ health insurance
                   policies and married spouses who have separated from the primary family policyholder. In addition,
                   some employers extend health insurance coverage and other benefits to unmarried partners of
                   employees as dependents—either gays or unmarried heterosexuals—and they could also be included
                   as adult dependents.
                   2
                    Most people under 65 years old with private coverage obtain their health insurance through
                   employment-based plans. Private insurance purchased directly by individuals covers about 5 percent
                   of the population under 65 years old as their only source of health insurance coverage. For more
                   information on the structure of the private market for individual coverage, see Private Health
                   Insurance: Millions Relying on the Individual Market Face Cost and Coverage Trade-Offs
                   (GAO/HEHS-97-8, Nov. 25, 1996).



                   Page 2                                                GAO/HEHS-97-35 Family Health Insurance
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             percent was due to fewer working-age adults and children being covered
             as dependents. Between 1989 and 1995, the percentage of working-age
             adults (18 to 64 years old) with private insurance coverage decreased from
             76 percent to 73 percent. If the same percentage of working-age adults had
             been covered in 1995 as in 1989, about 5 million more adults would have
             had private insurance. However, children experienced the greatest loss of
             private coverage. Over these 6 years, the percentage of children under 18
             years old with private health insurance decreased from more than 73
             percent to 66 percent. If private coverage levels had not decreased, about
             5 million more children would have private insurance.

             Declines in employment-based dependent coverage can increase the
             number of uninsured Americans and shift a greater burden for health care
             onto public payers. Between 1994 and 1996, health insurance premium
             costs have been relatively stable, which may help slow the erosion of
             private coverage. However, unless the decline in employment-based
             insurance coverage abates, public payers could face increased costs for
             health care—either for uncompensated care or for public insurance.


             Support for employment-based health insurance by employers contributes
Background   to the health and financial security of employees and their families. U.S.
             employers traditionally have provided private group health insurance as an
             employment benefit for their employees and their employees’ spouses and
             children. Beginning with World War II—when wages were frozen and
             employers wanted to attract good employees—employment-based
             insurance became a more common fringe benefit. Today, private health
             insurance offered through employment is the main source of health
             insurance coverage in the United States—in 1995, more than 90 percent of
             people under 65 years old with private insurance—150 million
             people—were insured through their employment. The majority of working
             adults 18 to 64 years old with private insurance (74 percent) work for
             private companies, but 17 percent work for the federal, state, or local
             governments. Most of the remainder are self-employed.

             Employment-based insurance—where employers pay part or all of the
             costs—can be advantageous for employees and many employers.3 For
             employees, such health insurance is generally more affordable because
             they receive group rates for coverage, which are typically lower than those

             3
              For employers of low-wage or part-time employees, the advantage for the employer is not as great.
             When employers consider salary and benefit costs together as an employee’s total compensation,
             benefits represent a much larger share of a low-wage employee’s total compensation than a high-wage
             employee’s total compensation.



             Page 3                                                GAO/HEHS-97-35 Family Health Insurance
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for individual coverage. In addition, employees do not pay taxes on
contributions that their employers make toward their employment-based
coverage—an advantage employees would lose if they were to receive
additional cash income and to purchase individual coverage. For
employers, offering affordable health insurance is an attractive benefit that
helps them promote the health and productivity of their work force and
remain competitive in recruiting new employees. Employers’ contributions
to employee benefits are deductible from their companies’ gross income
and thus reduce their companies’ tax liability.4 In the United States, the
system of private health insurance based on employment is entirely
voluntary. Employers are not required to provide insurance, nor are
employees required to purchase it.

In addition to private insurance, the federal, state, and some local
governments provide public funding for health insurance, primarily
through Medicaid, Medicare, state health insurance plans, and the Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS).
Medicaid is the largest public source of health insurance coverage for
children and working-age adults, covering 29 million people under 65 years
old in 1995. Enacted in 1965, Medicaid was designed to provide health care
coverage for populations whose incomes and resources were insufficient
to meet the costs of needed medical care, including adults and children
receiving Aid to Families With Dependent Children (AFDC) and aged, blind,
or permanently and totally disabled individuals. Although Medicaid has
expanded eligibility beyond these groups, it still limits eligibility to specific
populations of lower-income adults and children. Medicare provides
health care coverage for over 37 million people—most of them people 65
years old or older. Medicare also covers people entitled to disability
benefits for 24 months or more, people with end-stage renal disease
requiring dialysis or kidney transplant, and certain others who elect to buy
into the program through premium payments. CHAMPUS provides medical
care for active-duty or retired military families, as well as to the immediate
families of deceased active-duty or retired military personnel.

Although these private and public health insurance systems provide
coverage for many Americans, many remain uninsured. In 1995, more than
40 million people under 65 years old had no health insurance for the entire
year, including many employees and their families.




4
 However, employers would get the same deduction if they paid any other legitimate business expense,
such as cash wages.



Page 4                                                GAO/HEHS-97-35 Family Health Insurance
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                   From the late 1980s to the early 1994, the cost of health insurance
Employers          premiums5 rose rapidly, especially for family coverage. With these
Reexamined Their   increases in costs, many employers began to reexamine their role and the
Role as Premium    benefits they offered to employees, and some employers began to question
                   the extent of their responsibility to finance coverage for families.
Costs Increased
                   In the late 1980s, the cost of employment-based health insurance
                   premiums significantly outpaced inflation. Between 1988 and 1989,
                   employer costs for health insurance rose 18 percent in one year. By
                   contrast, general inflation was under 5 percent. Health insurance premium
                   costs began to stabilize recently. (See fig. 1.) However, health insurance
                   continues to be a major portion of employers’ total compensation to
                   employees—7.3 percent of payroll costs in 1993,compared with 4.4 percent
                   in 1980.




                   5
                    Many large companies self-insure, so that while their employees generally contribute to the cost of
                   their health coverage, they are not paying an insurance premium. However, for simplicity, we will refer
                   to all employee contributions for their health coverage that function similar to a premium payment as
                   premiums.



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Figure 1: Increases in Health Insurance
Premiums, 1991 to 1996
                                          Percent
                                          14


                                          12         11.5
                                                                    10.9

                                          10

                                                                                     8.0
                                              8


                                              6
                                                                                                    4.8
                                              4

                                                                                                                    2.1
                                              2
                                                                                                                                    0.5
                                              0
                                                     1991           1992            1993           1994            1995            1996

                                          Source: KPMG Peat Marwick, Health Benefits in 1996. This was a survey of about 1,000 randomly
                                          selected public and private employers with 200 or more employees.


                                          Between 1989 and 1996, cost increases for family premiums were 13 to
                                          23 percent higher than cost increases for employee-only premiums,
                                          depending on the type of health plan. For example, since 1989, premium
                                          costs for health maintenance organization (HMO)6 coverage for families
                                          increased 59 percent, while premium costs for employee-only HMO
                                          coverage increased only 36 percent. (See fig. 2 and table II.1)




                                          6
                                           HMOs are organized health care systems that are responsible for both the financing and delivery of a
                                          broad range of comprehensive health services to an enrolled population.



                                          Page 6                                                 GAO/HEHS-97-35 Family Health Insurance
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Figure 2: Percent Increases in Health
Insurance Premiums for
Employee-Only and Family Coverage,          Percent
1989-96                                     80

                                                                68
                                                                                                                             65
                                            60                                                 58
                                                                                                                      52
                                                        46

                                            40
                                                                                       35



                                            20




                                             0
                                                      Conventional                       HMO                            PPO

                                                 Employee-Only Coverage
                                                 Family Coverage

                                        Source: Health Insurance Association of America and KPMG Peat Marwick. The Health Insurance
                                        Association of America survey was of about 2,600 public and private employers with at least 2
                                        employees (for 1989) and the KPMG Peat Marwick surveys were of about 1,000 randomly selected
                                        public and private employers with 200 or more employees (all subsequent years).




Some Employers Question                 With the surge in health insurance premium costs, some companies began
Their Role in Providing                 to reevaluate their obligation to provide coverage to employees and
Family Coverage                         especially their dependents. A recent survey of 601 businesses found that
                                        40 percent would prefer to pay 50 percent or less of employee insurance
                                        premiums and only a minority believed that they should continue to pay
                                        the full cost of employee-only premiums. Of those who thought businesses
                                        should be required or encouraged to provide insurance to employees’
                                        families, nearly half agreed that employers should contribute an even
                                        smaller share for family coverage than employee coverage. According to
                                        the study, employers viewed their role in providing coverage to employees
                                        and their dependents as diminishing.7



                                        7
                                         Jack A. Meyer, Diane H. Naughton, and Michael J. Perry, Assessing Business Attitudes on Health Care
                                        (Washington, D.C.: Economic and Social Research Institute, 1996).



                                        Page 7                                                GAO/HEHS-97-35 Family Health Insurance
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Some firms—particularly those with fewer than 25 employees or that
primarily employ low-wage employees—do not offer health insurance. In a
1994 survey of over 22,000 establishments in 10 states, 42 percent did not
offer health insurance benefits; most were establishments with 1 to 4
employees or with a higher-than-average percentage of low-wage or
part-time employees.8

Historically, large employers and certain types of businesses—such as
manufacturing and other highly unionized industries—have provided
insurance packages with generous benefits for employees and their
families. Yet by doing so, these large employers in essence subsidize other
employers who do not cover their employees or offer a less
comprehensive package.9 Offering an attractive and costly benefits
package can put the firm at a competitive disadvantage with firms who do
not pay as much for benefits, and do not attract their employees’ families
to enroll.

According to several benefits consultants, some employers no longer want
to subsidize families to the extent that they have because they prefer to
more closely link total employee compensation to work contribution.
Employers that provide generous family health insurance packages, in
effect, pay employees with family coverage more than they pay employees
without family coverage—considering the value of benefits. Some
employers are concerned that this is not equitable. For example, a
company that pays 100 percent of the cost of employee health insurance
premiums could provide a benefit that is worth, on average, more than
twice as much to the employee who chooses family coverage over
employee-only coverage—$5,000 versus $2,000.




8
 Joel Cantor, Stephen Long, and M. Susan Marquis, “Private Employment-Based Health Insurance in
Ten States,” Health Affairs, Vol. 14, No. 2 (1995), pp. 199-211.
9
  Deborah Chollet, “Employer-based Health Insurance in a Changing Work Force,” Health Affairs, Vol.
13, No. 1 (1994), pp. 315-26.



Page 8                                                 GAO/HEHS-97-35 Family Health Insurance
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                            Employers have responded to the increases in health insurance costs in
Employers Raise             several ways. Some employers stopped offering health insurance coverage
Employees’                  altogether. Many who retained coverage have switched to managed care
Contributions to            plans in an attempt to control premium costs. Many employers also
                            increased the amounts employees had to pay toward their premiums, with
Premiums, Especially        growth in premium contributions by employees for family coverage
for Families, and           outstripping growth in premium contributions for employee-only
                            coverage. Some employers used other strategies to encourage employees
Discourage Family           not to choose family health insurance coverage, including paying
Coverage in Other           incentives to those who choose employee-only coverage.
Ways
                            These changes can provide significant savings for companies. A benefits
                            consultant reported to us that certain companies have saved 15 to
                            20 percent in costs associated with their health plans by increasing family
                            health insurance premium costs or by otherwise discouraging employees
                            from choosing family coverage.


To Offset Increases, Some   A small percentage of employees may have lost coverage because their
Employers Dropped           employer dropped health insurance or because they began working for a
Coverage—Others             firm that did not offer coverage. Overall, 78.4 percent of employees
                            reported that their employers sponsored health insurance plans in 1993,
Switched to Managed Care    compared with 79.3 percent in 1988.10 Smaller firms were more likely to
Plans                       stop offering health insurance—13 percent fewer people working in firms
                            with under 10 employees reported that their employers’ offered coverage
                            in 1993, compared to 1988. Larger firms—under 250 employees—also
                            dropped coverage, but at much lower rates.

                            By 1993, more than 29 million employees—almost one-fourth of the
                            workforce—could not get employment-based health insurance for their
                            families. Eighteen percent of these employees worked for firms that did
                            not offer health insurance; about 5 percent worked for firms that offered
                            employee-only health insurance but no coverage for other family
                            members.11

                            Other employers reacted to health insurance premium increases by
                            encouraging their employees to enroll in managed care. From 1984 to


                            10
                             The question asked if employers’ had a plan, whether or not the employee was eligible to participate.
                            See Employment-Based Health Benefits: Analysis of the April 1993 Current Population Survey,
                            Employee Benefit Research Institute Special Report SR-24 and Issue Brief No. 152 (Washington, D.C.:
                            Employee Benefit Research Institute, 1994).
                            11
                              Employment-Based Health Benefits: Analysis of the April 1993 Current Population Survey.



                            Page 9                                                  GAO/HEHS-97-35 Family Health Insurance
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                           1993, the number of employees in large firms who were enrolled in
                           managed care plans, such as HMOs, increased from 5 percent to 50 percent.
                           HMO premiums were generally lower than premiums for fee-for-service
                           plans, so employers could lower premium costs by switching the types of
                           plans they offered. This is coupled with fewer employers offering
                           indemnity plans. KPMG Peat Marwick reported that 89 percent of
                           employees with employment-based coverage could choose a conventional
                           indemnity plan in 1989; that percentage dropped to 57 percent by 1996.


Employers Increased        To offset increases in health insurance costs, some employers opted to
Employees’ Contributions   have employees share in the costs of their insurance premium or increased
for Health Insurance,      their share of these costs. According to DOL, less than one-half the
                           employees in large firms contributed to employee-only health insurance
Particularly for Family    premiums in 1988. By 1993, more than 60 percent did.12 In addition, more
Coverage                   than 75 percent of employers required employees to share in the costs of
                           family premiums in 1993. Employees’ share of premium costs are higher
                           for family coverage—30 percent for family coverage in 1996, compared to
                           22 percent for employee-only coverage, according to Peat Marwick. Since
                           1989, employees’ share of premiums increased more rapidly for
                           employee-only coverage, as fewer firms offered coverage at no
                           cost—which is more common for employee-only coverage. Hewitt
                           Associates also found that fewer major employers provided health
                           insurance plans at no cost to their employees or employees’ families in
                           1995 than the same companies did in 1990. (See fig. 3.)




                           12
                            DOL surveys medium and large establishments (with 100 or more employees) and small
                           establishments (fewer than 100 employees) separately every other year. References in this report to
                           DOL’s information on large firms includes DOL’s surveys of medium and large establishments only.



                           Page 10                                                GAO/HEHS-97-35 Family Health Insurance
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Figure 3: Percent of Major Firms
Offering Health Insurance With No
                                       Percent
Employee Premium Contribution, 1990
and 1995                               35

                                                                                                    30
                                       30
                                                    27
                                       25


                                       20

                                                                                                                            15
                                       15                                   14
                                                                                                          11
                                       10
                                                           7
                                                                                                                                  6
                                                                                   5
                                         5


                                         0
                                                Single Indemnity       Family Indemnity           Single PPO             Family PPO

                                         1990
                                         1995

                                      Notes: Major firms have 1,000 or more employees. Preferred provider organization (PPO) plans
                                      provide financial incentives for patients to get care from a selected network of doctors and
                                      hospitals by charging additional fees if patients go to providers outside the preferred network.
                                      Indemnity plans refer to traditional insurance plans, which reimburse providers and patients on a
                                      fee-for-service basis. HMOs require patients to have services delivered by providers affiliated
                                      with them, except for emergency treatment. HMOs also typically require patients to select a
                                      primary care physician to coordinate the patient’s care, especially for services involving referrals
                                      to specialists and hospital care. Point-of-service (POS) plans are similar to PPO plans, in that they
                                      encourage enrollees to use a selected network of doctors and hospitals, but allow patients to see
                                      providers out of the network if the patient pays additional fees for that care. Like HMOs, POS
                                      plans have enrollees select a primary care physician who coordinates care for the patient,
                                      including care requiring referrals to specialists. The Hewitt Associates report did not provide
                                      comparative information about HMOs and POS-type plans for 1990—only information for 1995.

                                      Source: Hewitt Associates, Salaried Employee Benefits Provided by Major U.S. Employers in 1990
                                      and 1995: A Comparison Study, 1996.


                                      Employees’ average monthly contribution also increased significantly
                                      between 1988 and 1993. Increases generally were greater for employees
                                      with family coverage than for those with employee-only coverage.
                                      According to DOL, in large firms average monthly contributions for family
                                      coverage increased 79 percent, compared to 64 percent for employee-only
                                      coverage between 1988 and 1993. (See table 1.)




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Table 1: Average Monthly Premium
Contributions Paid by Employees in                                                                                           Percent
Large Firms, 1988, 1989, 1991, and   Average monthly                                                                        increase
1993a                                contributionb                     1988          1989          1991           1993       1988-93
                                     Employee-only
                                     coverage                              $19        $25            $27           $32               64
                                     Family coverage                        60         72             97           107               79
                                     Note: Large firms have 100 or more employees. Percent increase may not calculate exactly from
                                     the premium costs in this table due to rounding.
                                     a
                                       Full-time employees only in medium and large establishments (100 or more employees). DOL
                                     also surveys small establishments (fewer than 100 employees).
                                     b
                                     Based only on those employees who contribute to the cost of their employment-based premium.

                                     Source: Bureau of Labor Statistics.



                                     Similarly, a Hewitt Associates study comparing benefits offered by the
                                     same set of major U.S. firms in 1990 and 1995 showed that for given types
                                     of health insurance plans, employees’ median monthly premium
                                     contributions increased more for family than for employee-only coverage.
                                     (See fig. 4.)




                                     Page 12                                             GAO/HEHS-97-35 Family Health Insurance
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Figure 4: Median Monthly Premium
Contributions by Employees for
Indemnity and PPO Plans in Major   Median Monthly Premium Contributions (in Dollars)
Firms 1990 and 1995
                                   100
                                                                           90
                                                                                                                      85
                                    80

                                                                                                                 63
                                    60                                55


                                    40
                                                     28                                          27
                                                                                           24
                                    20          19



                                      0
                                             Single Indemnity    Family Indemnity        Single PPO            Family PPO

                                      1990
                                      1995
                                   Source: Hewitt Associates, Salaried Employee Benefits Provided by Major U.S. Employers in 1990
                                   and 1995: A Comparison Study, 1996.




Health Insurance Is                For some families, the overall rise in health insurance costs has made the
Expensive for Some                 current price of employment-based health insurance difficult to afford. DOL
Families                           reported that in 1993, 16 percent of employees paid $150 or more per
                                   month for family health insurance premiums. The percentage of
                                   employees in state and local governments who spend $150 or more per
                                   month for family health insurance is even greater than in private industry.
                                   In 1992, 36 percent of state and local employees paid $150 or more per
                                   month for family health insurance. In addition, state and local employees’
                                   average monthly premium contribution for families was $139.23—almost
                                   five times the $28.97 average premium contribution for employee-only
                                   coverage.

                                   For low-income families, high premiums may make health insurance
                                   unaffordable. For example, premiums of $150 per month represent
                                   9 percent of gross income for a family with annual income of $20,000.
                                   Lower-income and part-time employees are less likely than higher-income



                                   Page 13                                             GAO/HEHS-97-35 Family Health Insurance
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                                       and full-time employees to have employment-based insurance, in part
                                       because it is less affordable for them. (See fig. 5.)


Figure 5: Percentage of People Under
65 Years Old and Employees 18 to 64
                                        Percent
Years Old With Private Health
Insurance Coverage, by Federal          100
Poverty Level, 1995
                                                                           87                                           87

                                         80



                                         60                                                                     58
                                                                   55


                                         40
                                                                                                         30
                                                           22
                                         20



                                          0
                                                        Under 65 Years Old                               18-64 Years Old


                                       Federal Poverty Level
                                              0-100%

                                              101-200%

                                              Over 200%

                                       Note: The federal poverty level shows the relation of family size and income to the Federal Poverty
                                       Income Guidelines. In 1996, a family of three with income at or below $12,980 would be
                                       considered poor—or with income under 100 percent of the federal poverty level. A family of three
                                       with income between 101 and 200 percent of the federal poverty level would have income
                                       between $12,980 and $25,960.

                                       Source: Analysis of March 1996 Current Population Survey.


                                       A recent study found that 64 percent of the uninsured people interviewed
                                       did not have insurance because they felt that they could not afford to
                                       purchase it, while only 8 percent did not have insurance because they did




                                       Page 14                                                GAO/HEHS-97-35 Family Health Insurance
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                              not want or need it.13 In the same study, 36 percent of uninsured people
                              reported problems paying prior medical bills. Of both insured and
                              uninsured people having problems paying their medical bills, 49 percent
                              paid more than $1,000 in out-of-pocket medical expenses in the previous
                              year and 8 percent paid more than $5,000.


Employers Use Other           Some changes that employers have made to their benefits packages may
Strategies to Reduce Costs,   discourage employees from choosing family coverage. These benefit
Especially Those              changes include introducing flexible benefit plans and establishing
                              premium rates based on family size.
Associated With Family
Coverage                      Some firms have designed their benefit plans in ways that encourage
                              employees in dual-income families to purchase health insurance coverage
                              from their spouses’ employers. This, coupled with increases in cost, can
                              eliminate duplicate coverage for dual-income families, which provides
                              savings for employers. It may also result in some employees dropping
                              coverage for their spouses or other family members.

Flexible Benefit Plans        To control benefit-related cost increases and to broaden employees’
Encourage Substitution of     choice of benefits, large firms increasingly are offering flexible or
Other Benefits for Family     cafeteria-type benefit plans and flexible spending accounts. In 1995,
Coverage                      Hewitt Associates reported that 88 percent of the major firms in its
                              database offered at least one of these options. Flexible plans and accounts
                              allow employees to select the benefits they want from a menu of benefits,
                              thus allowing them to maximize the value of their benefits by selecting the
                              ones they need most. Generally, firms designate a portion of employee
                              salaries as per-year credits; employees then allocate these credits among
                              available benefits, including health insurance. The amount of
                              employer-provided flexible benefit credits is typically set each year with
                              reference to some target—such as the change in current cost of one health
                              insurance option—plus enough to cover certain other benefits. However,
                              the increased flexible benefit credits may not cover employees’ increased
                              costs. If employees choose health insurance whose cost, along with other
                              benefits, exceeds the employer-provided credits, employees must pay the
                              difference. Some firms allow employees to designate an additional portion
                              of their salary to increase their flexible benefits plan or set up a flexible
                              spending account.


                              13
                                Karen Donelan, and others, “Whatever Happened to the Health Insurance Crisis in the United States?
                              Voices From a National Survey,” The Journal of the American Medical Association, Vol. 276, No. 16
                              (1996), pp. 1346-50. An earlier study also showed cost was a major issue for the uninsured: See David
                              U. Himmelstein, and Steffie Woolhandler, “Care Denied: U.S. Residents Who Are Unable to Obtain
                              Needed Medical Services,” American Journal of Public Health, Vol. 85, No. 3 (1995), pp. 341-44.



                              Page 15                                                GAO/HEHS-97-35 Family Health Insurance
                             B-271082




                             By eliminating the direct link between their contributions and the cost of
                             health insurance, firms can use flexible benefit plans to control their
                             benefit costs. Over time, they can make other changes to shift more cost to
                             employees with families, such as expanding the benefits for employees
                             using employee-only coverage and restraining benefits for families. For
                             example, one major high-technology manufacturing firm gives a $1,000
                             credit to an employee’s flexible benefits account if the employee chooses
                             to get health insurance coverage through his or her spouse. The employee
                             can use this $1,000 credit for other benefits. Even with the credit, the firm
                             saves over $2,000 per year, per employee, when the employee chooses not
                             to elect family coverage.

Tier Rating Offers Greater   Some employers restructured employee premium payments to base them
Differentiation of Premium   on the number of dependents covered. This tier structure can reduce
Rates                        health insurance costs for smaller families but raise them for larger
                             families. Without these changes, smaller families are subsidizing larger
                             ones. Lower premiums for a family composed of a single parent with one
                             child could encourage such families to purchase coverage for dependents.
                             But a higher premium for the larger family could discourage such families
                             from purchasing coverage for their dependents.

                             A simple two-tier structure would include one price for employee-only
                             coverage and another price for employee and dependent coverage.
                             According to some of the benefit consultants we spoke with, increasing
                             the number of tiers beyond the two-tier structure is becoming more
                             common for large firms. The majority of major firms have three or more
                             tiers. (See fig. 6.) An example of a three-tiered plan would be one that has
                             separate premium prices for employee-only coverage, for employee plus
                             one dependent, and for employee with two or more dependents.




                             Page 16                                   GAO/HEHS-97-35 Family Health Insurance
                                         B-271082




Figure 6: Coverage Tiers for Major
Firms in 1995
                                                                                                     Two Tiers
                                                                                                     24%




                                                                                                                     No Employee
                                                                                                                     Contributions
                                                                                                                     5%
                                         Three Tiers
                                         45%                                                                       Other
                                                                                                                   2%




                                                                                                        Four Tiers
                                                                                                        24%

                                         Source: Hewitt Associates, Salaried Employee Benefits Provided by Major U.S. Employers in
                                         1995, 1996.


Employers Implement                      According to benefits consultants, some firms design their benefit plans to
Strategies to Shift Burden of            encourage employees with working spouses to get their insurance from
Coverage Onto Working                    their spouses’ company. These strategies include
Spouses
                                     •   refusing to cover a spouse if the spouse has other health insurance
                                         coverage,
                                     •   providing incentive payments to employees who refuse family coverage,
                                     •   imposing a surcharge for working spouses covered as dependents, and
                                     •   refusing to provide dependent coverage unless the employee is the family’s
                                         primary wage-earner.

                                         For example, one major manufacturing firm offers a policy that
                                         supplements major medical for employees’ families—covering costs that
                                         other policies do not—if the employees use their spouses’ health
                                         insurance as the primary coverage. This policy covers 100 percent of the
                                         first $1,000 of eligible expenses for the employee—thus allowing the
                                         employee to avoid any deductible on the primary policy—and then pays an
                                         additional 25 percent of covered expenses, with an out-of-pocket
                                         maximum of $1,500.



                                         Page 17                                             GAO/HEHS-97-35 Family Health Insurance
                         B-271082




                         How often these strategies are used is not known. In addition, some of
                         these strategies are difficult to implement without the cooperation of
                         employees because they depend on self-reporting of other coverage by
                         working spouses.

                         Whether or not such strategies lead to a loss of coverage may depend on
                         family circumstances. Where dual-income families have more than one
                         source of coverage and can absorb any increase in costs, the effect on
                         coverage might be minimal. A 1992 survey showed that only 30 percent of
                         major companies allowed their employees to opt out of health insurance
                         coverage without at least a sworn statement that the employees had other
                         coverage. However, even firms that require that the employees have
                         coverage may not require their employees’ dependents to have coverage.


                         As employers dropped coverage or raised the cost of coverage for
Loss of Dependent        employees and families, the percentage of people with private health
Coverage Accounts        insurance coverage declined. In 1989, 75 percent of people under 65 years
for Most of the Recent   old had private health insurance; by 1995, this number dropped to just
                         under 71 percent. Most of this decline was among dependents.14 Changing
Loss in Private          or losing jobs leads to breaks in coverage, but even when working steadily
Coverage                 on the same job, employees and their families can lose their insurance.

                         Children and working-age adults both lost health insurance coverage and
                         losses were greatest among lower-income people. In 1989, 76 percent of
                         working-age adults and almost 74 percent of children under 18 years old
                         had private insurance. In 1995, almost 73 percent of working-age adults
                         had private health insurance compared with almost 66 percent of children.
                         If the same percentage of children and working-age adults had been
                         privately covered in 1995 as had been covered in 1989, about 5 million
                         more children and about 5 million more adults would have had private
                         insurance.

                         Between 1989 and 1995, a larger percentage of people under 65 years old
                         whose incomes were at or below 200 percent of the federal poverty level
                         lost private insurance than those whose incomes were above the
                         200 percent level. For the poorer group, coverage dropped from about
                         45 percent in 1989 to less than 40 percent in 1995. Private coverage for
                         those with incomes above 200 percent of the federal poverty level also
                         dropped but by less—from about 89 percent to 87 percent.

                         14
                          Employment-based coverage is over 90 percent of all private coverage. We discuss trends in private
                         coverage in this section because changes in the CPS have made data on employment-based coverage in
                         1994 incompatible with previous years’ data on employment-based coverage. (See app. I.)



                         Page 18                                              GAO/HEHS-97-35 Family Health Insurance
B-271082




Most of the overall decline in private coverage is due to the loss of
coverage for dependents—between 69 and 91 percent, depending on
which years are compared.15 Both children and adults lost coverage as
dependents. (See fig. 7.) In addition to the loss of children’s dependent
coverage cited above, 24 percent of adults had private dependent coverage
in 1989, which dropped to 21 percent by 1995—almost all of the drop in
adult coverage in those years. In contrast to the loss of adult dependent
coverage, the percentage of working-age adults as the primary holder of
private health insurance was similar in 1989 and 1995—51.6 percent
compared with 51.4 percent.




15
  Sixty-nine percent of the decline was due to loss of dependent insurance comparing 1989 with 1993.
Comparing 1989 and 1995, dependent coverage becomes an even greater percentage of the loss in
private coverage—over 90 percent. However, changes in the CPS for March 1995 may have affected
our analysis for 1995, so we are reporting a range of estimates. (See app. I.) For a different analysis of
the CPS, which came to a similar conclusion, see John Sheils, and Lisa Alecxih, Recent Trends in
Employer Health Insurance Coverage and Benefits, prepared by The Lewin Group, Inc., for the
American Hospital Association (Washington, D.C.: American Hospital Association, 1996). These
researchers chose to adjust earlier years’ CPS data so that they could compare employment-based
coverage in 1994 with earlier years.



Page 19                                                   GAO/HEHS-97-35 Family Health Insurance
                                           B-271082




Figure 7: Percentage of People Under 65 Years Old With Private Dependent Health Insurance Coverage, 1989-95

Percent
50



40             39
                                      36                          36                          35

30



20



10



 0
              1989                  1991                         1993                        1995

                                           Source: GAO analysis of the March 1990, 1992, 1994, and 1996 Current Population Survey.


                                           Job change is not the only reason for loss of coverage. One study showed
                                           that between February 1991 and September 1993, 36 percent of adults and
                                           children who lost insurance for at least 1 month were dependents of a
                                           employee who remained on the same job.16 Another 25 percent of adults
                                           and children experienced breaks in their insurance coverage when a
                                           family member changed jobs or occupations and 21 percent lost insurance
                                           at the same time an employed family member lost his or her job. Some
                                           children lost insurance because they became too old to be covered under
                                           their parent’s policy, while other adults and children lost insurance
                                           because of the death of or divorce from an employed family member.

                                           Some of the loss of adult dependent coverage probably represents shifting
                                           among adults in their coverage status. It is likely that some dual-income
                                           families found it less costly to have each earner covered under his or her
                                           own employer’s policy—these families may now have two policyholders.
                                           However, other families might have an employee who dropped or lost

                                           16
                                             Sheils and Alecxih, Recent Trends in Employer Health Insurance Coverage and Benefits.



                                           Page 20                                                 GAO/HEHS-97-35 Family Health Insurance
                         B-271082




                         coverage entirely. For example, women were and continue to be more
                         likely to be covered as dependents on others’ health insurance policies
                         than men, but the percentage of women as policyholders has increased. In
                         1989, almost 55 percent of women 18 to 64 years old with private health
                         insurance were policyholders; by 1994, this number was almost 60 percent.
                         Similarly, comparing 1989 with 1995, the percentage of people who were
                         married without children increased as policy holders, which helped offset
                         their decrease in dependent coverage.


                         Families that do not have individual or employment-based private health
Reductions in Private    insurance basically have one of two options: they can remain uninsured or
Coverage May Shift       they can seek health insurance through public assistance. Part of the
More Burden for          burden to pay for health care for individuals without private insurance
                         then falls onto taxpayers through directly subsidized health providers,
Health Care to Public    such as public hospitals or community clinics, or through publicly
Payers                   subsidized insurance. Medicaid, the main public health insurance program
                         for children and working-age adults, has greatly expanded its enrollment
                         in recent years. Evidence is mixed on the extent to which Medicaid
                         expansion served to dampen the effects of deteriorating private coverage
                         or exacerbated losses in private coverage by encouraging some
                         low-income people to drop private insurance.

                         Welfare reform efforts may decrease Medicaid enrollment and increase the
                         percentage of uninsured Americans. Eligibility rules have changed for
                         some groups, and states will be moving welfare recipients into the
                         workforce. However, low-income adults moving into the workforce may
                         not gain access to private insurance, while losing Medicaid coverage.


Being Uninsured Has      Being uninsured can have serious health and financial consequences.
Serious Health and       According to a recent survey funded by the Kaiser Family Foundation,
Financial Consequences   45 percent of uninsured adults had problems getting health care and most
                         reported having serious financial and health consequences as a result.
                         Thirty-six percent of uninsured adults reported having trouble paying
                         health care bills.17 Moreover, people without health insurance tend to
                         forego health care more than those with health insurance. Therefore,
                         when the uninsured seek care, their condition often is more advanced and,




                         17
                          Twenty-eight percent had problems with getting care and paying bills, 17 percent only had problems
                         getting care, 8 percent only had problems paying bills, and 47 percent reported neither problem.



                         Page 21                                               GAO/HEHS-97-35 Family Health Insurance
                          B-271082




                          thus, more expensive to treat.18 Compared with all adults, uninsured adults
                          who had trouble getting care or paying their health care bills were more
                          likely to be in fair or poor health (34 percent compared with 19 percent),
                          to be disabled (38 percent compared with 14 percent), or to have been
                          hospitalized in the previous year (21 percent compared with 12 percent).19

                          People without health insurance are more likely to seek care in public
                          clinics and hospital emergency rooms—increasing the burden on these
                          facilities. Covering the expenses of treating the uninsured has become
                          increasingly difficult for hospitals. Due to more aggressive contracting by
                          insurers and managed care companies, these payers are less likely to pay
                          full hospital charges. Public payments to hospitals through Medicaid and
                          Medicare have helped hospitals cover the cost of caring for the uninsured,
                          although Medicare and Medicaid traditionally paid less than full charges
                          for hospital costs. But in the past, private payers helped to subsidize the
                          difference. Increased use of managed care in the public sector in some
                          areas of the country may also be shifting patients away from the hospitals
                          that primarily serve the uninsured.


As Private Coverage       While the percentage of people with private insurance declined, the
Eroded, Medicaid          percentage of people with Medicaid coverage increased. In 1987, about
Expanded—but So Did the   18 million people under 65 years old had public insurance through
                          Medicaid; by 1995, this number escalated to almost 29 million. More
Uninsured                 families sought assistance through AFDC and Supplemental Security
                          Income (SSI)—which entitled them to Medicaid coverage as well—and
                          Medicaid eligibility was expanded to include pregnant women and
                          children. In addition, several states, through federal waivers of Social
                          Security law, expanded Medicaid coverage to low-income populations not
                          previously eligible. While expanding Medicaid helped to stabilize the
                          percentage of insured people in families with incomes below 200 percent
                          of the federal poverty level between 1989 and 1994, a greater percentage of
                          people with family incomes above 200 percent of the federal poverty level
                          were uninsured in 1994.

                          According to two studies, expanded government insurance programs may
                          have encouraged some families to drop private health insurance coverage




                          18
                           See David U. Himmelstein, and Steffie Woolhandler, “Care Denied: U.S. Residents Who Are Unable to
                          Obtain Needed Medical Services.”
                          19
                           See Donelan, and others, “Whatever Happened to the Health Insurance Crisis in the United States?
                          Voices from a National Survey.”


                          Page 22                                               GAO/HEHS-97-35 Family Health Insurance
                          B-271082




                          in favor of Medicaid.20 The extent to which this happens is unclear,
                          however, because three other studies found no effect.21 Cutler and Gruber
                          estimate that between 1987 and 1992, 17 percent of the decrease in
                          employment-based insurance was due to Medicaid expansions for
                          pregnant women and children. They attribute the other 83 percent to
                          changes in employer behavior unrelated to Medicaid generosity, changes
                          in the demographic mix of the population, and economic conditions at the
                          time. Dubay and Kenney, using somewhat different assumptions, estimate
                          that 12 to 18 percent of children’s increase in Medicaid coverage was
                          linked to a reduction in employment-based health insurance coverage.
                          They also state that children above federal poverty levels were more likely
                          to have displaced private insurance with Medicaid than poor children.

                          Unless the decline in private insurance coverage abates, public payers may
                          be facing increased costs for health care—either for uncompensated care
                          or public insurance. If employment-based insurance continues to decline,
                          the number of people who are uninsured will likely increase. The Lewin
                          Group, Inc., has estimated that the number of uninsured Americans will
                          increase from about 40.0 million Americans in 1995 to 45.6 million
                          Americans in 2002.


Low-Income Families May   Whether Medicaid will continue to expand its enrollment and help hold
Lose Coverage Through     down growth in the number of uninsured people over the next few years is
Welfare Reform            unclear. Under welfare reform, eligibility rules have changed in ways that
                          could affect Medicaid coverage for low-income children and adults.

                          Before reform, over 60 percent of the children and adults receiving
                          assistance through Medicaid were automatically enrolled under AFDC or
                          SSI. Under the new welfare program—Temporary Assistance for Needy
                          Families (TANF)—families receiving cash assistance will not be
                          automatically enrolled in Medicaid unless a state chooses to do this. Past
                          studies of the Medicaid population have shown that automatic enrollment
                          in Medicaid for AFDC recipients led to higher coverage levels than among

                          20
                             See David M. Cutler, and Jonathan Gruber, Does Public Insurance Crowd Out Private Insurance?
                          National Bureau of Economic Research, working paper No. 5082 (Cambridge, Mass.: 1995), and Lisa
                          Dubay, and Genevieve Kenney, Revisiting the Issues: The Effects of Medicaid Expansions on Insurance
                          Coverage of Children (Washington, D.C.: The Urban Institute, 1995).
                          21
                           See Lara D. Shore-Sheppard, “Stemming the Tide? The Effect of Expanding Medicaid Eligibility on
                          Health Insurance Coverage” (unpublished draft, Nov. 1995), Lara D. Shore-Sheppard, “The Effect of
                          Expanding Medicaid Eligibility on the Distribution of Children’s Health Insurance Coverage”
                          (unpublished draft presented at the Cornell/Princeton conference on Reforming Social Insurance
                          Programs, May 1996), and Esel Y. Yazici, “Medicaid Expansions and the Crowding Out of Private
                          Health Insurance” (paper presented at the 18th Annual Research Conference of the Association for
                          Public Policy Analysis and Management, Pittsburgh, Penn., Nov. 2, 1996).


                          Page 23                                               GAO/HEHS-97-35 Family Health Insurance
             B-271082




             people who had to apply separately for Medicaid. If states develop
             separate application processes for TANF and Medicaid, such processes may
             raise barriers to Medicaid enrollment.

             Generally, families who would have qualified for AFDC-Medicaid coverage
             will still qualify for Medicaid. The law extends eligibility to people who
             would have been eligible under AFDC rules in effect as of July 16, 1996.
             However, states can roll back the July 16, 1996, AFDC income standards to
             May 1, 1988, levels. States also can raise these levels for inflation and can
             use more liberal methodologies to determine countable income and
             resources. The new law allows states to terminate Medicaid eligibility for
             any adult who is terminated from TANF because of failure to work, but their
             minor children cannot be terminated from Medicaid on that basis. The law
             also extends Medicaid for up to a year for those who either become
             employed or have increased earnings and received Medicaid under the
             prewelfare reform AFDC eligibility criteria in 3 of the preceding 6 months.

             There are no changes in current eligibility rules for pregnant women and
             children based on age and income. However, SSI eligibility for children
             with disabilities is tighter under the new law, which could reduce
             Medicaid enrollment of SSI children. Some children who lose eligibility
             based on SSI or because their families exhaust transitional Medicaid may
             be able to gain eligibility based on age and income.

             The new law limits eligibility in a significant way—based on citizenship
             status. Before the new law, all legal immigrants and permanent residents
             who qualified based on other eligibility criteria were eligible for Medicaid.
             Under the new law, qualified aliens currently residing in the United States
             will be eligible for Medicaid only at the state’s option, unless a qualified
             alien is a member of one of the excepted groups whose Medicaid eligibility
             is mandated by law.22 Qualified aliens who enter the country in the future
             will be banned from Medicaid coverage for 5 years from their date of
             entry, except for treatment of emergency medical conditions.


             As the cost of health insurance escalated, many employers restructured
Conclusion   their benefits. Some employers dropped health insurance coverage


             22
               A qualified alien is a person lawfully admitted for permanent residence, asylees, refugees, persons
             paroled into the United States for at least 1 year, persons whose deportation has been withheld, and
             persons granted conditional entry. The excepted groups of qualified aliens are legal permanent
             residents with 40 qualifying quarters of work; and for 5 years from entry to the U.S.—refugees, asylees,
             and persons whose deportation has been withheld; and certain veterans and active duty military and
             their families.



             Page 24                                                 GAO/HEHS-97-35 Family Health Insurance
                  B-271082




                  entirely—particularly small employers—shifting the burden entirely to
                  employees. But more commonly, employers increased the amount
                  employees had to pay to gain coverage, particularly for family coverage.

                  As this occurred, coverage became less available and less affordable for
                  many Americans. The percentage of Americans under 65 years old with
                  private health insurance decreased. Thus, many Americans who are unable
                  to purchase health insurance for themselves and their families have
                  trouble getting health care. In particular, some children and working
                  adults who earn low wages are being squeezed out of the private insurance
                  market. At the same time, many of these Americans are not eligible for
                  public medical assistance. This slow erosion of private coverage
                  contributed to a loss of coverage—leaving more than 40 million Americans
                  under 65 years old uninsured.

                  Public pressure to increase publicly funded care may intensify if the
                  number of Americans who lose private insurance coverage continues to
                  rise. However, state and federal efforts to reform welfare may decrease
                  the number of people covered through Medicaid. In addition, policymakers
                  have become concerned that increasing public coverage will encourage
                  employers or families to drop private coverage in favor of public coverage.
                  If the availability of both public and private coverage continues to erode,
                  the number of uninsured will inevitably continue to grow.

                  Through welfare reform, states will be trying to move families off
                  assistance and into the private sector. Ideally, as welfare recipients begin
                  working, they will gain access to private insurance. However, former
                  welfare recipients tend to land low-wage jobs, which often do not offer
                  health insurance coverage or may not offer insurance which they can
                  afford. Even after a year in the workforce, many former welfare recipients
                  may still not be able to access or afford private coverage for their families.
                  This suggests that low-income working families may continue to need
                  subsidized health insurance if they are to have health insurance coverage.


                  We sought comments on a draft of this report from experts on private
Agency Comments   health insurance issues and from the Health Care Financing
                  Administration on the section of the draft report that dealt with Medicaid
                  and welfare reform. The reviewers generally agreed with our report, but
                  provided technical suggestions that we included where appropriate.




                  Page 25                                   GAO/HEHS-97-35 Family Health Insurance
B-271082




As agreed with your office, we plan no further distribution of this report
for 30 days. At that time, we will make copies available on request. Please
contact me at (202) 512-7114 or Michael Gutowski at (202) 512-7128 if you
or your staff have any further questions. This report was prepared by
Michael Gutowski, Sheila Avruch, Paula Bonin, and Karen Sloan.

Sincerely yours,




Jonathan Ratner
Associate Director, Health Financing
  and Systems Issues




Page 26                                  GAO/HEHS-97-35 Family Health Insurance
Page 27   GAO/HEHS-97-35 Family Health Insurance
Contents



Letter                                                                                            1


Appendix I                                                                                       30
                       Sources of Information for This Report                                    30
Information Sources    Methodological Issues in the CPS Analysis                                 31
and Methodology
Appendix II                                                                                      33

Average Monthly
Health Insurance
Premiums for
Employer-Sponsored,
Employee-Only, and
Family Coverage,
1989-96
Related GAO Products                                                                             36


Table                  Table 1: Average Monthly Premium Contributions Paid by                    12
                         Employees in Large Firms, 1988, 1989, 1991, and 1993

Figures                Figure 1: Increases in Health Insurance Premiums, 1991 to 1996             6
                       Figure 2: Percent Increases in Health Insurance Premiums for               7
                         Employee-Only and Family Coverage, 1989-96
                       Figure 3: Percent of Major Firms Offering Health Insurance With           11
                         No Employee Premium Contribution, 1990 and 1995
                       Figure 4: Median Monthly Premium Contributions by Employees               13
                         for Indemnity and PPO Plans in Major Firms 1990 and 1995
                       Figure 5: Percentage of People Under 65 Years Old and                     14
                         Employees 18 to 64 Years Old With Private Health Insurance
                         Coverage, by Federal Poverty Level, 1995
                       Figure 6: Coverage Tiers for Major Firms in 1995                          17
                       Figure 7: Percentage of People Under 65 Years Old With Private            20
                         Dependent Health Insurance Coverage, 1989-95




                       Page 28                                GAO/HEHS-97-35 Family Health Insurance
Contents




Abbreviations

AFDC       Aid to Families With Dependent Children
CHAMPUS    Civilian Health and Medical Program of the Uniformed
                 Services
CPS        Current Population Survey
DOL        Department of Labor
HMO        health maintenance organization
POS        point of service
PPO        preferred provider organization
SSI        Supplemental Security Income program
TANF       Temporary Assistance for Needy Families


Page 29                              GAO/HEHS-97-35 Family Health Insurance
Appendix I

Information Sources and Methodology


                       This report used several sources of information, including the Bureau of
                       the Census’ Current Population Survey. This appendix discusses the
                       sources of information and selected information on the CPS and how we
                       analyzed it.


                       Several sources of information can be used to track trends in health
Sources of             insurance coverage. Each of the sources we used provides different
Information for This   information in different ways for different years. In general, less
Report                 information is available on small businesses than on large and major firms.
                       We define large firms as those with at least 100 employees and major firms
                       as those with over 1,000 employees. Therefore, we focused on large and
                       major firms. Consequently, we may have overstated support for employer
                       coverage of health insurance because larger firms are more likely to
                       provide coverage to employees and families than smaller firms.

                       We used the following sources of information:

                       DOL’s Bureau of Labor Statistics. The Bureau’s surveys of employee
                       benefits provide representative data for 34 million employees in medium
                       and large private establishments (places of work that employ 100 or more
                       people) in 1988, 1989, 1991, and 1993 and for 49 million employees in small
                       private establishments (places of work that employ fewer than 100 people)
                       in 1990, 1992, and 1994. The Bureau surveys establishments of different
                       size in alternate years. We reported information from the surveys on
                       medium and large establishments (which fit our definition of large firms)
                       and state and local governments.

                       The Health Insurance Association of America. The Association began a
                       survey in 1987 that was continued for several years.

                       KPMG Peat Marwick. Since 1991, KPMG Peat Marwick has conducted a
                       nationwide telephone survey of about 1,000 randomly selected private and
                       public employers with 200 or more employees on the health benefits they
                       provide. The survey instrument and sample design is similar to the Health
                       Insurance Association of America surveys and, thus, can be compared.

                       Hewitt Associates. This company collects information on benefits
                       provided by major U.S. employers (many with over 5,000 employees) and
                       has published reports on major companies’ benefits.




                       Page 30                                 GAO/HEHS-97-35 Family Health Insurance
                        Appendix I
                        Information Sources and Methodology




                        The Robert Wood Johnson Foundation. The Foundation studied health
                        insurance coverage in 10 states by surveying over 22,000 establishments.

                        The Bureau of the Census’ CPS. The CPS is a nationally representative
                        survey that is the official source of government statistics on employment
                        and unemployment. Every March the Bureau collects additional
                        information on health insurance coverage. We used the CPS to measure
                        private insurance coverage and private dependent insurance coverage in
                        1989, 1991, 1993, and 1995. Because of certain methodological changes
                        implemented in March 1995 and continued in March 1996 (which affected
                        the 1994 and 1995 data), including changes in the questionnaire, we
                        considered it more appropriate to compare private insurance coverage,
                        rather than make such comparisons for employment-based insurance
                        coverage in 1995 to earlier years.

                        We did not independently verify data from these sources. The private
                        surveys are proprietary, and DOL and the Bureau of the Census conduct
                        their own validity and reliability checks of their data. We checked some of
                        our CPS analyses against published Census data and have consulted with
                        the Bureau of the Census to ensure accurate analyses of its data files.


                        For the March 1995 CPS, the Bureau of the Census implemented a number
Methodological Issues   of changes in an effort to improve the accuracy and ease of administering
in the CPS Analysis     the survey. These changes include moving to a computer-assisted
                        telephone interviewing system and reordering and rewording survey
                        questions on health insurance. The earlier questionnaire asked people
                        (1) if they had private insurance, (2) if they were the policyholder, (3) if
                        the insurance was obtained through their employment, and (4) who else
                        was covered as a dependent. The new questionnaire asks (1) if they have
                        private insurance through an employer or union; (2) who is the
                        policyholder; (3) who else is covered; and (4) if they have purchased
                        individual health insurance and, if so, additional people who are covered
                        by this policy.

                        These changes appear to affect how people answer questions about their
                        insurance coverage, which can affect estimates of insurance coverage.
                        These changes also can affect the comparability of 1994 and subsequent
                        years’ estimates with previous years’ estimates. When the 1994 data were
                        released, officials at Census stated that the 1994 estimate of overall private
                        insurance agreed well with previous years’ estimates. However, the
                        number of people who report that their private insurance coverage comes



                        Page 31                                   GAO/HEHS-97-35 Family Health Insurance
Appendix I
Information Sources and Methodology




from their employer or union increased, while the number who reported
that their private insurance was individually purchased decreased.
Therefore, because these apparent differences may be due to the
questionnaire change—rather than actual changes in the composition of
private health insurance coverage—comparisons of employment-based
insurance coverage in 1994 and 1995 with previous years may not be
appropriate to understand trends in coverage. In particular, dependents
appeared to be misclassified as not having employment-based insurance in
past surveys. This is why our CPS analysis compares private insurance,
rather than employment-based insurance.

Because we were concerned that changes in the questionnaire would
affect estimates of private dependent health insurance coverage, we also
partially analyzed the March 1994 CPS (1993 data), to compare dependent
coverage in 1993. However, the change in the questionnaire did not appear
to affect the estimates of dependent coverage.

Our work was conducted between February and November 1996 in
accordance with generally accepted government auditing standards.




Page 32                                 GAO/HEHS-97-35 Family Health Insurance
Appendix II

Average Monthly Health Insurance
Premiums for Employer-Sponsored,
Employee-Only, and Family Coverage,
1989-96
                                                                                                                                     Percent
                                                                                                                                    increase
Plan type                         1989a       1991           1992           1993           1994           1995           1996        1989-96
Conventional
Employee-only                     $119        $145           $154           $170           $181           $166           $174               46
Family                             268         355            384            441            463             433            449              68
HMO
Employee-only                      116         139            148            158            166             160            157              35
Family                             267         350            377            422            450             423            423              58
Preferred provider organization
Employee-only                      119         150            157            181            177             174            181              52
Family                             271         376            412            454            453             433            448              65
                                          a
                                           The 1989 survey included smaller firms. Smaller firms generally had higher premium costs. We
                                          used the average cost by type of insurance and, for HMOs, calculated a weighted average by
                                          type of HMO. This made baseline insurance costs in 1989 a little higher for indemnity plans and
                                          HMOs and lower for PPOs than if we had only reported costs for firms with 1,000 or more
                                          employees.

                                          Source: Health Insurance Association of America and KPMG Peat Marwick. The Health Insurance
                                          Association of America survey was of about 2,600 public and private employers with at least 2
                                          employees (for 1989) and the KPMG Peat Marwick surveys were of about 1,000 randomly selected
                                          public and private employers with 200 or more employees (all subsequent years).




                                          Page 33                                               GAO/HEHS-97-35 Family Health Insurance
Appendix II
Average Monthly Health Insurance
Premiums for Employer-Sponsored,
Employee-Only, and Family Coverage,
1989-96




Page 34                               GAO/HEHS-97-35 Family Health Insurance
Appendix II
Average Monthly Health Insurance
Premiums for Employer-Sponsored,
Employee-Only, and Family Coverage,
1989-96




Page 35                               GAO/HEHS-97-35 Family Health Insurance
Related GAO Products


              Private Health Insurance: Millions Relying on Individual Market Face Cost
              and Coverage Trade-Offs (GAO/HEHS-97-8, Nov. 25, 1996).

              Medicaid and Uninsured Children, 1994 (GAO/HEHS-96-174R, July 9, 1996).

              Health Insurance for Children: Private Insurance Coverage Continues to
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              Medicaid: Spending Pressures Spur States Toward Program Restructuring
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              Health Insurance for Children: State and Private Programs Create New
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              Health Insurance for Children: Many Remain Uninsured Despite Medicaid
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              Medicaid: Spending Pressures Drive States Toward Program Reinvention
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              Medicaid: Restructuring Approaches Leave Many Questions
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              Medicaid: Experience With State Waivers to Promote Cost Control and
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              Uninsured and Children on Medicaid (GAO/HEHS-95-83R, Feb. 14, 1995).

              Employer-Based Health Insurance: High Costs, Wide Variation Threaten
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              (GAO/HRD-92-90, May 14, 1992).




(101396)      Page 36                                  GAO/HEHS-97-35 Family Health Insurance
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