US: The erosion of employer-provided health care

by Jared Bernstein and Heidi Shierholz

It is widely recognized that the means through which most working-age Americans receive health care coverage-the employer-based system-is undergoing fundamental change. Though a majority of workers and their families are still covered through employers, a variety of factors, most prominently increased costs, have led to a steady slide in coverage.

This decline has occurred in good economic times and bad, implying a structural, as opposed to cyclical, shift. For example, though the current business cycle has been both highly productive and profitable, the share of workers nationwide with employer-provided health insurance (EPHI) from their own job fell each year, from 51.1% in 2000 to 48.8% in 2006-a decline of 2.3 percentage points. In California, this share declined even further, 2.8 percentage points, from 49.0% in 2000 to 46.2% in 2006.

This report examines what role changes in the composition of employment have played in this decline. To what extent, for example, has this negative trend been driven by the loss of jobs with high rates of coverage? Conversely, what has been the role of diminished coverage rates within existing jobs?

To take a simple example, imagine an economy with two industries, one with very high rates of EPHI and the other with low rates. Next, assume that changes in the nature of demand and production in the global economy lead to job losses in the high-coverage industry and job gains in the low-coverage industry. This change in the composition of jobs would lead to lower overall coverage rates, even if rates of coverage remained the same within both industries. This report will refer to this type of decline in coverage rates as the decline from moving “between” industries. Of course, coverage could also decline within these industries, regardless of each industry’s share of total employment. In this paper, we quantify how much of the decline in health insurance coverage can be attributed to “between” losses-those caused by changes in the composition of employment-and “within” losses-those caused by declining coverage within job sectors.

The above example will likely lead some readers to think about the long-term, ongoing shift from manufacturing to services. While we show that the loss of manufacturing jobs has indeed played the predicted role in the loss of coverage, we find that changes in the likelihood of coverage within jobs have been a much more important determinant of the loss of EPHI coverage, both nationally and in California.

In fact, the statistical analysis in this report suggests that over the last decade, the composition of jobs has had a relatively minor effect on changes in EPHI. Industry shifts have had small negative impacts on coverage both nationally and in California, while occupational shifts have had small positive effects nationally and small negative effects in California. But the big story is taking place within sectors: regardless of which industries or occupations have been adding or losing jobs, changes in EPHI are driven by employer decisions as to whether to provide coverage or not. Similarly, when we look at worker characteristics, we find that, while there have been some “between” gains in worker demographics that have led to higher EPHI (namely, educational upgrading along with the workforce getting older), we also find that there have been significant declines in coverage within categories across the entire age and education spectrum.

The conclusion of this report stresses the policy implications of these findings. The fact that within-sector and within-demographic changes (and not changes in the composition of jobs and workers) are largely driving EPHI trends underscores the need for a national approach to health coverage. Even were we to somehow radically change the composition of jobs toward sectors with higher coverage rates, or change the composition of the workforce through dramatic educational upgrading, the decline in coverage within job sectors and worker demographic categories would still lead to further losses.

This report examines changes in EPHI over the years 1995-2006, both nationally and in California. Though the decline in coverage is a long-term trend, the latter 1990s saw a pause in the trend, as slower growth in the costs of health care provision coincided with very low unemployment.1 In fact, the share of workers covered by EPHI increased nationally from 1995 to 2000, from 49.6% to 51.1%, before resuming its decline in the 2000s. Note that the loss of coverage in the 2000s more than offset the 1995-2000 gains, such that the coverage rate in 2006 was 48.8%, about a point below the 1995 level. California experienced a very similar overall trend, but with bigger declines in the 2000s, putting its coverage rate in 2006 about a point and a half below the 1995 level.

(The Economic Policy Institute is a nonprofit, nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy)

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1 Response to “US: The erosion of employer-provided health care”


  1. 1 George Shaw April 24, 2008 at 2:37 am

    Actually, while it sounds rather draconian, this is the best thing that could happen if the U.S. ever wants to have a national health care system. As long as people can exchange part of their salary (without them even thinking of it in that way) for health care, they are not going to support national health care. When a majority of the people are forced to pay the exorbitant costs of the present U.S. health care system, then they will see a reason to support a national health care system.


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