Snapshots: Health Benefit Offer Rates and Employee Earnings
Employer-provided health insurance is the primary source of insurance coverage in the United States, covering almost 160 million people.1 About 90 percent of the non-elderly privately-insured population is covered by employer-sponsored plans, meaning that employer decisions about whether to offer health benefits will influence overall rates of insurance coverage in the United States. Sixty-nine percent of all firms offered health benefits to their employees in 2010.2
It is well-known that highly-paid workers are more likely to receive employer health insurance offers.3 Many of the studies available on the salaries and fringe benefits of workers do not show how the salaries of a group of co-workers influence an employer’s decision to offer insurance. For example, even if most employees in a firm earn low wages, employers may still decide to offer health benefits if they also employ a few higher-wage workers in the same establishment who value this coverage. This paper addresses this question by showing how the offer of employer health insurance differs depending on the distribution of worker earnings within an establishment.
The analysis is based on data from the National Compensation Survey (NCS), which is a nationwide survey of labor costs in private and public establishments conducted quarterly by the Bureau of Labor Statistics (BLS).4 The figures below show establishment-level offer rates by the number of employees in the establishment and the overall wage level of the jobs that are sampled in the NCS. The figures include all employees in sampled jobs, including those that are seasonal, part-time, or temporary.5 The data are from 2005 through 2010. Employee earnings were adjusted for inflation, and are shown in 2010 dollars.6 Other details about the NCS and our analysis are available below in a methodological appendix.
Offer Rates and Worker Earnings
For each firm size category we studied, establishments with higher-wage workers were more likely to offer health benefits than establishments with lower-wage workers (Figure 1). For instance, in establishments with less than 10 employees, only 17 percent offered health insurance when the average employee wage was less than $15,000 per year, whereas 31 percent offered when the average was between $15,000 and $20,000, and 47 percent offered between $20,000 and $25,000. Even at higher average wage levels, establishments with less than 10 employees offered insurance much less often than larger establishments.
Larger establishments with low-wage workers generally offered health benefits more often than smaller establishments with low-wage workers (Figure 1). Fifty-five percent of establishments with 1,000 or more employees offered insurance when the average wage was less than $15,000, whereas 41 percent of establishments with 25 to 99 employees and 26 percent of establishments with 10 to 24 employees offered health benefits in the lowest-wage category.
Notes: Wages cutoffs are adjusted for inflation to 2010 dollars.
Source: Kaiser Family Foundation calculations based on data from the National Compensation Survey, 2005-2010, conducted by the Bureau of Labor Statistics.
Next, we show establishment offer rates by establishment size and the percentage of workers who are in a job where workers make less than $30,000 on average (Figure 2). Viewing offer rates by an earnings cutoff is useful because it is a more explicit measure of the spread of workers’ salaries within an establishment, and, unlike averages, comparing earnings to wage cutoffs are not sensitive to particular groups of employees with very large or very small salaries.7
Establishments with high percentages of jobs where workers make less than $30,000, on average, were generally less likely to offer than other establishments (Figure 2). Offer rates were much higher for firms where less than 90 percent of employees made less than $30,000. In establishments where 90 percent or more of employees made less than $30,000, the offer rate varied between 26 and 78 percent, depending on establishment size. For most establishment size categories, there was a general progression from lower to higher offer rates, as the percentage making less than $30,000 decreased (moving from right to left in Figure 2).8
Notes: Wages cutoffs are adjusted for inflation to 2010 dollars.
Source: Kaiser Family Foundation calculations based on data from the National Compensation Survey, 2005-2010, conducted by the Bureau of Labor Statistics.
Discussion
This paper shows that, on average, establishments with lower-wage employees offer health benefits less frequently. For smaller establishments, offer rates are particularly lower when wages are low.
Of course, other factors that were not considered here might explain the patterns we show for offer rates and worker earnings. For instance, this analysis did not distinguish between full and part-time workers, or between those that are permanent, temporary, or seasonal.
These findings nevertheless suggest that policymakers interested in encouraging employers to offer health benefits may wish to pay particular attention to how the distribution of wages within the establishment are related to whether employees are offered benefits. Smaller, low-wage establishments may require particular focus to encourage offering at a rate comparable to larger, high-wage businesses. Special subsidies or insurance products may be needed in order to encourage more offering among these businesses, or to help their workers seek out other means of insurance coverage.
This paper was prepared by Gary Claxton and Anthony Damico of the Kaiser Family Foundation’s Health Care Marketplace Project, and is an update to an analysis originally published in 2008. Paul Jacobs, who formerly worked in that division, helped to prepare the prior version.
Methodological Appendix
The Employment Cost Index (ECI) is a nationwide survey of labor costs in private and public establishments conducted quarterly by the Bureau of Labor Statistics (BLS). The ECI was developed in the mid-1970s to track changes in the costs of employment. Later modifications added data about health and other fringe benefits. Since about 2003, the ECI sample was merged with a broader group of surveys on employer benefits and payroll costs collectively referred to as the National Compensation Survey (NCS).9
ECI/NCS data are constructed by first choosing establishments in private industry and in state and local governments in the 50 states and the District of Columbia. Federal government, agriculture, and private household establishments are excluded from the sample. Then the survey collects information about the costs of employment for up to eight job classifications in each establishment that is surveyed. The data are aggregated to a job level, rather than collected for individual workers, so that continuity within establishments may be maintained over time as individual workers enter and exit the establishment. Jobs are sampled proportional to their prevalence at the establishment. For instance, in a plant which produces coal, separate wage and benefits costs for miners, engineers, and truck drivers may be obtained by the survey, whereas other jobs with fewer employees, such as for accountants and crane operators, may be excluded. The data we use are nevertheless representative of all workers in the United States as of June of each calendar year. The exhibits and calculations are presented on an establishment level and include all employees in sampled jobs, including those that are seasonal, part-time, or temporary. We use data each year from 2005 to 2010.
Because the data are collected from establishments, not firms, firm-level characteristics, e.g. firm size, are not available. The paper avoids the use of the term firm, although it uses the terms “employer” and “establishment” synonymously although they may not be equal.
The BLS provides survey weights which enable the researcher to calculate statistics which are representative of workers in the United States in a given year. An adjustment to these weights was made to correct for changes in the composition of industries and occupations in the United States over time. This adjustment allows for a more accurate comparison of figures over time, but only very marginally affected the results presented in this paper.
BLS researchers impute missing data for hourly values when respondents do not provide sufficient data to calculate them. 5.9 percent of observations were missing a response to the question of whether health insurance was offered to workers holding that particular job. Rather than impute a value for these observations, for all statistics, these observations were excluded from our sample. For average hours worked within a particular job, we did impute a value whenever a response was missing. The method we used was a regression imputation procedure which very closely approximated the mean and variance of the hours worked variable as originally reported by establishments.
The Kaiser Family Foundation obtained access to the ECI/NCS through an agreement with the BLS. All analyses were performed on site at the BLS headquarters in Washington D.C. from August to October of 2010 by Kaiser Family Foundation staff.
Notes:
1. Kaiser Commission on Medicaid and the Uninsured, “The Uninsured: A Primer,” Kaiser Family Foundation, October 2009. Available online at: http://www.kff.org/uninsured/7451.cfm.
2. Kaiser Family Foundation/Health Research and Educational Trust, “Employer Health Benefits 2010 Annual Survey,” September 2010. Available online at: http://ehbs.kff.org/.
3. This may be because workers with higher wages can more easily afford to pay more for such benefits, because they have higher marginal tax rates so they benefit more from the tax deduction for employer-paid health insurance premiums, or because they may value health coverage more than lower-wage workers for other reasons.
4. As part of the National Compensation Survey, the Bureau of Labor Statistics collects these data quarterly to develop the Employment Cost Index (ECI) which is designed to measure changes in compensation costs for the civilian workforce. Other details on how the statistics were derived from the ECI data are reported in the Methodological Appendix at the back of this report.
5. Excluding part-time workers would most likely increase the average wages within an establishment, and the percentage of workers with earnings in excess of $30,000. Since these establishments are also more likely to be the ones that do not offer benefits, the offer rates for some of the higher wage categories would be more likely to fall. NCS data did not allow us to exclude seasonal or temporary workers as distinct from part-time workers.
6. Because the annualized Consumer Price Index for 2010 was not available at the date of publication, all dollars are inflated to the CPI-U of August 2010.
7. The NCS initially collects wage data from individual workers, and then aggregates that data into average amounts for particular job classifications. (See Methodological Appendix for more details). The numbers shown in Figure 2 are offer rates by the percentage of an establishment’s sampled jobs which have average earnings less than the $30,000 cutoff. Comparing individual workers’ earnings to such a cutoff was not possible given data availability, but may have changed our results. The results also depend, obviously, on the choice of cutoff. The pattern we describe was consistent regardless of whether we used cutoffs of $20,000, $30,000, $40,000, or $50,000.
8. For establishments with less than 10 employees, offer rates were smaller for establishments with less than 75 percent making less than $30,000 (66 and 72 percent) than they were for those where between 75 and less than 90 percent made less than $30,000 (73 percent).
9. More information about the ECI and the NCS is available online at: http://www.bls.gov/ncs/home.htm