Employer-Sponsored Health Insurance and the Low-Income Workforce

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Abstract

As the number of uninsured grows, and the share with employer-sponsored insurance (ESI) falls, questions arise about the future viability of our largely employer-based insurance system. Significant weaknesses exist in the system, and these are heightened for the low-income working population and their employers. A menu of policy options are available for expanding coverage, and expansions will require a combination: income and health status related subsidies; a guaranteed source for all individuals to obtain coverage; requiring at least a minimum level of insurance; requiring employers contributions; increasing enrollment and retention in existing insurance options; and cost containment strategies.

Introduction

Recent trends related to employer-sponsored health insurance do not inspire much optimism, particularly concerning the low-income population. Employment-based coverage among low-income workers continues to fall while the share of those workers without any insurance continues to climb. Some have portended the near-term demise of the employment-based insurance system. This paper outlines the problems with employer-sponsored insurance from the perspective of employers, specifically those employing low-income workers, and discusses potential strategies for addressing them.

While the trends to which I have alluded are clearly a cause for concern and may reasonably be a catalyst for policymakers, are we witnessing the beginning of the end of employer-sponsored insurance? As of 2005, more than three-quarters of employees were covered by ESI, either via their own employer or that of a family member (Clemans- Cope et al. 2006). Even among near-poor workers (those with family incomes between 100 and 199 percent of the federal poverty level), more than half had ESI in 2005.

Thus, eradication of ESI does not appear on the immediate horizon. In truth, the biggest concern from a coverage standpoint today is for the modest-income workers and for those with substantial health care needs. And while many employers may wish to be out of the business of purchasing health insurance for their workers, for many, doing so is an important tool for attracting and retaining their desired types of employees (Galvin and Delbanco 2006). Such a degree of stability and inertia is critical at this time, since there is no effective safety net that would provide access to adequate and affordable coverage if a significant share of people with ESI coverage were to suddenly find themselves without it.

But if the news of ESI’s death has been somewhat premature, we should not minimize or ignore its weaknesses and shortcomings. These problems are heightened for the low-income working population and their employers. The background section of this paper provides further details on recent trends in ESI. Next I outline the problems and issues associated with ESI from the employer perspective and then present strategies for addressing the shortcomings of the current system.

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

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