Health Affairs, 25, no. 6 (2006): 1497-1506 doi: 10.1377/hlthaff.25.6.1497 © 2006 by Project HOPE	New Online   Senate Health Reform Bill   Rewarding Providers   Public Option Policy Brief   Health Reform & Abortion   Delivery System Reform

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Trends

The ‘Graying’ Of Group Health Insurance

Abstract

 
We examine differential declines in private insurance by income and age. We show that older, higher-income people in working families are more likely to retain private coverage as premiums rise, and we project these effects on future coverage rates. The analysis suggests that trends are leading to the "graying" of the employment-based health insurance system, where older, higher-income people get private health insurance, and others increasingly have public coverage or go without. These changes raise questions about the private health care system’s ability to pool health risks. Population aging could interact with rising premiums and place additional pressure on an already strained employment-based health insurance system.

Although the employment-based health insurance system has its proponents and its critics, many can agree that a key feature of the system is its role in creating groups to pool health risks. Yet there is some reason to question whether the risk-pooling feature is changing as group coverage rates decline. Private coverage has been in a slow decline since the late 1980s, and younger and lower-income groups have disproportionately lost coverage.¹ Between 2000 and 2004, for example, declines in employment-based coverage were steepest for younger and low-income people, while coverage rates for older nonelderly adults (ages 55–64) increased slightly.² Depending on which types of people lose coverage, declines in group coverage could affect the stability of the system over time. If those with systematically lower spending are more likely to lose coverage over time, the effects of increasing costs and declining coverage could be multiplied.

In this paper we extend prior analyses to consider the future of group health insurance. We present new analyses and draw from existing studies to provide suggestive evidence that ongoing changes could affect the future composition of the population with group coverage. Our analysis suggests that well before we see the much-anticipated effects of the baby-boom generation’s retirement on Medicare and Social Security financing, population aging combined with rising premiums could place more pressure on an already strained employment-based system.

Trends In Private Insurance Coverage

Top Trends In Private Insurance... Changes In The Composition... Projections Of Future Trends Implications Of Rising Premiums... NOTES

 
Data source and study sample. We began by assessing changes in private coverage for people in working families overall and by income and age groups. We used data from the March Current Population Survey (CPS) to consider three time periods: 1988–1993, 1995–1999, and 2000–2004. Changes to the wording of CPS health insurance questions mean that data from the three different periods are not strictly comparable across periods.³ Also because of CPS changes, we examined trends in all private coverage, not just employment-based coverage, which captures possible substitution into individual coverage. We limited the sample to people in working families to include those who might have access to group health insurance through current employment. We classified families into health insurance units, the typical unit in which insurance is purchased. We defined working families as health insurance units with one or more workers age twenty or older, working in private- or government-sector jobs in the past year, who are not self-employed.

Overall coverage patterns. As other studies have shown, coverage rates declined before 1993 and after 2000, both periods of a weakening economy and health care cost growth, and increased during the late 1990s, a period of strong economic growth and slowing health care cost growth (Exhibit 1).⁴ In the periods when coverage was declining, younger adults in working families, who started with lower coverage rates, experienced steeper declines than did people ages 45–64 in working families (Exhibit 1). Similarly, coverage rates for people in lower-income working families were lower initially and declined more rapidly than rates for people in higher-income working families in the periods when coverage was declining (Exhibit 1). These overall patterns reflect changes in demographics, economic conditions, policies, and health insurance markets. We return to these alternative explanations below.

Top Trends In Private Insurance... Changes In The Composition... Projections Of Future Trends Implications Of Rising Premiums... NOTES

Coverage differentials by age, income, and health status. Younger and lower-income groups experienced greater group coverage declines than did the oldest and highest-income groups, resulting in widening differentials between the two (Exhibit 2). For example, group coverage rates for people ages 18–24 were lower than those for people ages 55–64 (Exhibit 2) in 2000, and this differential widened between 2000 and 2004.

Differentials widened for all age and income groups relative to the oldest and highest-income groups, respectively, and the changes were statistically significant (Exhibit 2). The results of greater employment-based coverage declines among young adults and lower-income people are consistent with prior studies.⁶

Composition of the insured pool. These trends, when combined with changes in the age and income distribution across the population in working families, yield changes in the composition of the insured pool. For example, between 2000 and 2004, the average age of people with group coverage in working families rose 1.2 years to age thirty-two, compared with an increase of 0.5 years to age twenty-seven for the population without group coverage (data not shown). To our knowledge, changes in the composition of group coverage have received limited direct investigation in the research literature, although the potential for declining risk pooling could hold important consequences for ongoing changes in group coverage.

The "graying" effect. To further explore composition changes, Exhibit 3 shows changes in the age, income, and health status composition of the total population and the group coverage population in working families between 2000 and 2004. Because we limited the sample to families with at least one worker, the composition of the total population in working families reflects changes in labor-force participation as well as demographic shifts. If there were no systematic attrition in coverage, the composition of the population with group coverage would change by the same amount as composition changes in the total population among working families.

Income changes. The share of the group coverage population with the highest incomes increased 0.8 percentage points to 53 percent from 2000 to 2004, despite the fact that the share of this income group declined 0.8 percentage points to 43 percent of the working-family population overall (Exhibit 3).

Health status changes. Finally, in 2004, people in excellent or very good health constituted 75.4 percent of people with private group coverage in working families, slightly more than their 72.7 percent share of all people in working families. There was no systematic decline in coverage by health status. Both the share of those with group coverage and the share of the population in good or excellent health declined about 0.5 percentage points.

Although the results merit further investigation using other data sets and additional years of data as they become available, these analyses suggest that factors beyond labor-force participation and demographic changes are contributing to changes in the age and income composition of the population with group coverage. Next we examine some possible explanations.

Projections Of Future Trends

Top Trends In Private Insurance... Changes In The Composition... Projections Of Future Trends Implications Of Rising Premiums... NOTES

 
We next consider the likely course of coverage changes into the future. We emphasize the role of rising premiums and differential effects across age and income groups. Studies using a range of approaches have concluded that although economic conditions affect short-term changes in coverage rates, rising health care costs, rather than labor-market shifts or public coverage expansions, are the major factor in long-term private coverage declines.⁷

Previous analyses. In our own previous work, we used city-level variation in employer health premiums, adjusted for benefit differences, and found that rising premiums accounted for about two-thirds of the overall decline in insurance coverage over the 1990s, controlling for labor-market, demographic, and policy factors. In further work we suggested that declines in response to rising premiums are greater in areas with greater charity care availability, particularly so for lower-income people and younger adults.⁸

Sherry Glied and Kathrine Jack used state-level variation in Medicare spending per capita (excluding home health care) and also found that rising costs, as well as periods of economic downturn, are associated with private coverage declines, with greater declines in response to rising costs among less-educated groups.⁹ Richard Kronick and Todd Gilmer used national measures of health spending per capita and found that rising health spending as a share of workers’ earnings accounted for nearly all of the decline in workers’ job-based coverage between 1979 and 1995, with similar results for more recent years.¹⁰

Effects of higher premiums on coverage for working families. We extended our prior work to examine the role of rising premiums in private coverage declines for people in working families across multiple age and income groups, controlling for demographic, labor-market, and policy factors.¹¹ We used premium data from the Henry J. Kaiser Family Foundation (KFF)/Health Research and Educational Trust (HRET) annual Survey of Employer-sponsored Health Benefits and adjusted for benefit differences such as plan design and services offered. We used March CPS data on insurance coverage in different metropolitan statistical areas (MSAs) at the beginning and end of the 1990s (1989–1991, 1998–2000).

We used the CPS data to control for individual and family characteristics, including basic demographics, income, and employment characteristics. We also controlled for factors including state tax rates, uncompensated care availability, Medicaid and State Children’s Health Insurance Program (SCHIP) changes for children, state insurance reforms, and the percentage of working women in an MSA. We ran probit regressions for the working-family population overall and separately by age and income groups.¹²

In contrast to younger and lower-income groups, rising premiums have limited effects on rates of coverage for the oldest and highest-income groups. A $1,000 increase in premiums is associated with a 3.8-percentage-point decline in private coverage overall. Young adults (ages 18–29) experience a steeper-than-average decline, while older adults (ages 45–64) have essentially no decline associated with rising premiums (Exhibit 4). Similarly, low- to middle-income people (family incomes less than 200 percent and 200–399 percent of the federal poverty level) have greater coverage declines in response to rising premiums, while coverage for the highest-income families (400 + percent of poverty) is statistically unchanged in response to rising premiums.

View larger version (16K): [in this window] [in a new window]   EXHIBIT 4 Change In Private Coverage Among Working Families As A Result Of $1,000 Premium Increase, By Age Group And Income Level

In the highest age and income categories, rising premiums have limited effects on projected private coverage rates for people in working families, holding other characteristics constant (Exhibit 5). In contrast, coverage is projected to decline four percentage points for children under age 18 and ten percentage points for adults ages 18–29. We project that coverage will decline five to six percentage points for people with family incomes below 200 percent of poverty and 200–399 percent of poverty, respectively, in response to rising premiums, with limited projected declines for the highest-income group.

View larger version (16K): [in this window] [in a new window]   EXHIBIT 5 Projected Effects Of Rising Premiums On Private Coverage, By Age And Income, 2000 And 2015 (Projected)

Implications Of Rising Premiums And Population Aging

Top Trends In Private Insurance... Changes In The Composition... Projections Of Future Trends Implications Of Rising Premiums... NOTES

 
In addition to the projected changes attributable to rising premiums, the group coverage population is also likely to become older as the baby-boom generation moves through the upper ages of the workforce. Aging of the baby boomers will result in an increased share of the population ages 45–64. Compared with 2000, this age group will increase by about twenty-one million by 2015.¹⁴ Thus, the composition of group coverage would be expected to shift toward older adults even absent the effects from rising premiums.

Even if the population with employment-based coverage remains quite healthy, costs of coverage could increase as the average age of people with group coverage rises. A simple approximation multiplying average health spending per age category for people with private coverage to the change in age composition in group coverage between 2000 and 2004 (the last column of Exhibit 3) suggests that the observed shift in age composition adds an additional $107 to average spending per person with group coverage.¹⁵ Although the main driver of rising premium costs is ongoing changes in medical technology, this highly simplified approximation suggests the possibility that population aging will interact with ongoing differential declines in group coverage to add to ongoing increases in premium costs.¹⁶

IN CONTRAST TO SUBSTANTIAL POLICY ATTENTION to the implications of population aging for Medicare and Social Security, the potential consequences of population aging for group health insurance have received little consideration. Well before we see the effects of baby boomers’ retirement on Medicare and Social Security financing, population aging combined with rising premiums could place more pressure on an already strained employment-based health insurance system.

Editor's Notes

 
Patricia Keenan (patricia.keenan{at}yale.edu) is an assistant professor in the Department of Epidemiology and Public Health, Yale University School of Medicine, in New Haven, Connecticut. David Cutler is the Otto Eckstein Professor of Applied Economics and dean, social sciences, at Harvard University in Cambridge, Massachusetts. Michael Chernew is a professor in the Department of Health Care Policy, Harvard Medical School, in Boston.

The authors acknowledge funding support from the Economic Research Initiative on the Uninsured and the National Institute on Aging.

NOTES

Top Trends In Private Insurance... Changes In The Composition... Projections Of Future Trends Implications Of Rising Premiums... NOTES

 

1. See, for example, P.F. Cooper and B.S. Schone, "More Offers, Fewer Takers for Employment-based Health Insurance: 1987 and 1996," Health Affairs 16, no. 6 (1997): 142–149[Medline]; H. Farber and H. Levy, "Recent Trends in Employer-sponsored Health Insurance: Are Bad Jobs Getting Worse?" Journal of Health Economics 19, no. 1 (2000): 93–119[CrossRef][Web of Science][Medline]; S. Glied and M. Stabile, "Explaining the Decline in Health Insurance Coverage among Young Men," Inquiry 37, no. 3 (2000): 295–303[Web of Science][Medline]; and R. Kronick and T. Gilmer, "Explaining the Decline in Health Insurance Coverage, 1979–1995," Health Affairs 18, no. 2 (1999): 30–47.[Abstract]
2. J. Holahan and A. Cook, "Changes in Economic Conditions and Health Insurance Coverage, 2000–2004," Health Affairs 24 (2005): w498–w508 (published online 1 November 2005; 10.1377/hlthaff.w5.498).[Abstract/Free Full Text]
3. K. Swartz, "Changes in the 1995 Current Population Survey and Estimates of Health Insurance Coverage," Inquiry 34, no. 1 (1997): 70–79[Web of Science][Medline]; and C.T. Nelson and R.J. Mills, "The March CPS Health Insurance Verification Question and Its Effect on Estimates of the Uninsured," August 2001, http://www.census.gov/hhes/www/hlthins/verif.html (accessed 27 April 2006). Changes in 1995 particularly affected reports of group coverage for dependents. The verification question in 2000 particularly increased employment-based coverage for people with higher incomes.
4. See, for example, Cooper and Schone, "More Offers, Fewer Takers"; Farber and Levy, "Recent Trends"; Glied and Stabile, "Explaining the Decline"; and Kronick and Gilmer, "Explaining the Decline."
5. These changes are discussed in Note 3.
6. J. Holahan and M. Wang, "Changes in Health Insurance Coverage during the Economic Downturn: 2000–2002," Health Affairs 23 (2004): w31–w42 (published online 28 January 2004; 10.1377/hlthaff.w4.31); Holahan and Cook, "Changes in Economic Conditions"[Abstract/Free Full Text]; and J.D. Reschovsky, B.C. Strunk, and P. Ginsburg, "Why Employer-sponsored Insurance Coverage Changed, 1997–2003," Health Affairs 25, no. 3 (2006): 774–782.[Abstract/Free Full Text]
7. Cooper and Schone, "More Offers, Fewer Takers"; Farber and Levy, "Recent Trends"; Kronick and Gilmer, "Explaining the Decline"; Reschovsky et al., "Why Employer-sponsored Insurance Coverage Changed"; P. Fronstin and S.C. Snider, "An Examination of the Decline in Employment-based Health Insurance between 1988 and 1993," Inquiry 33, no. 4 (1996/1997): 317–325; and S.H. Long and J. Rodgers, "Do Shifts toward Service Industries, Part-Time Work, and Self-Employment Explain the Rising Uninsured Rate?" Inquiry 32, no. 1 (1995): 111–116.[Web of Science][Medline]Regarding public coverage expansions specifically, while studies have identified a range of estimates of crowding out from Medicaid and SCHIP expansions, none have concluded that public coverage expansions were a major factor in private coverage declines. See D.M. Cutler and J. Gruber, "Does Public Insurance Crowd Out Private Insurance?" Quarterly Journal of Economics 111, no. 2 (1996): 391–430[CrossRef][Web of Science]; J.C. Ham and L. Shore-Sheppard, "The Effect of Medicaid Expansions for Low-Income Children on Medicaid Participation and Private Insurance Coverage: Evidence from the SIPP," Journal of Public Economics 89, no. 1 (2005): 57–83[CrossRef]; A.T. Lo Sasso and T.C. Buchmueller, "The Effect of the State Children’s Health Insurance Program on Health Insurance Coverage," Journal of Health Economics 23, no. 5 (2004): 1059–1082[CrossRef][Web of Science][Medline]; and J.L. Hudson, T.M. Selden, and J.S. Banthin, "The Impact of SCHIP on Insurance Coverage of Children," Inquiry 42, no. 3 (2005): 232–254.[Web of Science][Medline]
8. M. Chernew, D.M. Cutler, and P.S. Keenan, "Increasing Health Insurance Costs and the Decline in Insurance Coverage," Health Services Research 40, no. 4 (2005): 1021–1039[CrossRef][Web of Science][Medline]; and M. Chernew, D. Cutler, and P.S. Keenan, "Charity Care, Risk Pooling, and the Decline in Private Health Insurance," American Economic Review 95, no. 2 (2005): 209–213.[CrossRef]
9. S. Glied and K. Jack, "Macroeconomic Conditions, Health Care Costs, and the Distribution of Health Insurance Coverage," NBER Working Paper no. 10029 (Cambridge, Mass.: National Bureau of Economic Research, October 2003).
10. Kronick and Gilmer, "Explaining the Decline"; and T. Gilmer and R. Kronick, "It’s The Premiums, Stupid: Projections of the Uninsured through 2013," Health Affairs 24 (2005): w143–w151 (published online 5 April 2005; 10.1377/hlthaff.w5.143).[Abstract/Free Full Text]
11. See Chernew et al., "Increasing Health Insurance Costs," for additional discussion of the data and the analytic approach.
12. Complete details and results of the regression analysis are available on request from the authors. Send e-mail requests to Patricia Keenan, patricia.keenan{at}yale.edu.
13. See, for example, Gilmer and Kronick, "It’s the Premiums, Stupid"; and Chernew et al.,, "Increasing Health Insurance Costs."
14. U.S. Census Bureau, 2004, "U.S. Interim Projections by Age, Sex, Race, and Hispanic Origin," 18 March 2004, calculated from detail file available at http://www.census.gov/ipc/www/usinterimproj/usproj2000-2050.xls (accessed 15 May 2006).
15. Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey Household Component Data, generated using MEPSnet/HC, http://www.meps.ahrq.gov/mepsnet/HC/MEPSnetHC.asp (accessed 6 May 2006). Mean total health care expenditures were calculated for people with private coverage, by age categories.
16. On medical technology and costs, see J.P. Newhouse, "An Iconoclastic View of Health Cost Containment," Health Affairs 12 Supp. (1993): 152–171.[Abstract]On rising premiums, see J. Gabel et al., "Health Benefits in 2005: Premium Increases Slow Down, Coverage Continues to Erode," Health Affairs 24, no. 5 (2005): 1273–1280.[Abstract/Free Full Text]

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