100% Employer Paid Health Insurance

By Kevin

Here's an interesting Discussion Paper from the Census' Center for Economic Studies: Contributions to Health Insurance Premiums: When Does the Employer Pay 100 Percent? by Alice Zawacki and Amy Taylor. The abstract:

We identify the characteristics of establishments that paid 100 percent of health insurance premiums and the policies they offered from 1997-2001, despite increased premium costs. Analyzing data from the MEPS-IC, we see little change in the percent of establishments that paid the full cost of premiums for employees. Most of these establishments were young, small, singleunits, with a relatively high paid workforce. Plans that were fully paid generally required referrals to see specialists, did not cover pre-existing conditions or outpatient prescriptions, and had the highest out-of-pocket expense limits. These plans also were more likely than plans not fully paid by employers to have had a fee-for-service or exclusive provider arrangement, had the highest premiums, and were less likely to be self-insured. [Emphasis added]

The dataset provides information on establishments and on the health insurance plans offered by each "The MEPS – IC collects data on premiums for single and family coverage, contributions by employers and employees, provider type, plan enrollment, deductibles, and copayments."

In essence, firms that contribute 100% of premia are more likely to offer higher-priced plans, but these same plans offer some contraints -- more need for referrals, higher out-of-pocket expenses, lower coverage of pre-existing conditions, and lower coverage of outpatient prescriptions. (Granted, the absolute differences don't seem all that large, even where they are statistically significant).

Which leads me to ask, what's going on here? For firms that pay 100%, higher premia appear to be buying plans with -- on average -- slightly smaller benefits. The authors note this is partly due to firm size -- smaller firms are more likely to cover 100% than larger firms. So there might be some scale effects on costs.

But the analysis also notes that 100% employer paid plans have FAR lower self-insured indemnification -- 13% of plans instead of 29% -- meaning that liability for excess medical costs is shifted from employer to health insurer far more frequently when employers are paying 100% of the premium than otherwise. In other words, employers paying 100% less frequently need to buy stop-loss insurance, and more frequently shift the risk of excess coverage to insurance companies within the health insurance contract. I'd say that's what they're paying the extra dough for, but that's just a hunch.

Interesting stuff.

(Alternate copy of the paper here).

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