Part 2

In addition to the state exit studies,²⁴ another source of evidence about the impacts of loss of cash assistance can be found in the set of evaluations of the impacts of welfare-work initiatives. Several program evaluations contain data which may suggest that one unintended consequence of state efforts to increase employment among families receiving assistance could be a decline in health care coverage:

• The National JOBS Program Evaluation measured the impacts of employment efforts at a set of sites around the country using experimental design, where one set of families were subject to program participation requirements and another set were not. Three sites operated a “labor force attachment” model, focusing on rapid job placements. In those sites, two years after families entered the study, the employment rates were higher for the experimental group (42.5% versus 34.4% for a control group) but the percent covered by Medicaid or private health insurance during the month before the survey was lower for the experimental group (77.4% versus 82.7% for the control group.) Thus, the focus on rapid employment had led to an eight percentage point increase in the number of families with employment, but a five percentage point decline in the number covered by either Medicaid or private health insurance.²⁵
• In Florida’s Project Independence, 45% of a sample of those subject to Project Independence requirements were employed at some point in a two-year period and their most recent job did not provide health benefits; for the control group, the comparable figure was 37%.²⁶
• The Riverside County GAIN Program has often been recognized for its large impacts in raising employment rates among those subject to its requirements. The evaluation of the program found that in a survey interview two to three years after orientation, 27% of those subject to program requirements (as compared with 18% of members of a control group) reported that Medicaid or other health insurance did not personally cover them.²⁷

Thus, in each of these instances, the program was successful in raising employment entries, but one unintended consequence was a decline in health care coverage for affected families.

3. Findings from State Benefit Termination/Sanction Studies Concerning Medicaid Consequences of Loss of AFDC/TANF

Another set of studies focus specifically on families losing assistance due to sanctions. As noted, until fairly recently, state sanction policies only terminated assistance to the parent rather than to the entire family when a single parent failed to comply with program requirements, but in the last years of AFDC, states began to make use of full-family terminations, and under TANF, such policies have become widespread. The use of full-family terminations has raised many questions about the impacts of such policies on the well-being of parents and children, though to date, there are only a handful of studies that expressly look at the impacts of such terminations.

When a sanction occurs, it is possible that the parent’s Medicaid coverage is being terminated as a matter of sanction policy, but under the law applicable both before and after TANF, the imposition of the penalty on the parent should not have affected the childrens’ Medicaid coverage.

One of the first indications that loss of cash assistance might be associated with loss of Medicaid came in a review issued by the General Accounting Office of early state experiences with benefit terminations. At the time of the report (May 1997) most states did not have significant numbers of benefit terminations for noncompliance with program rules. Three states with early experiences were Massachusetts, Iowa, and Wisconsin. In each of these three states, the level of Medicaid coverage fell substantially after benefit termination. Surveys conducted in the range of two to five months after termination of benefits showed:

• in Massachusetts, the share of families in which at least one family member received Medicaid fell from 100% to 58.5%;
• in Wisconsin, the share of families in which at least one family member received Medicaid fell from 100% to 53.5%;
• in Iowa, the share of families in which at least one family member received Medicaid fell from 86.3% to 54.4%.

Declines were also seen in food stamp receipt. The GAO noted that “officials in all three states expressed surprise at the amount of the decline in receipt of food stamps and Medicaid among households losing AFDC benefits.”²⁸

Iowa engaged in a more detailed study of families whose assistance was denied or terminated for failure to comply with requirements to enter into or follow through with a Family Investment Agreement (FIA).²⁹ Data in that study suggests that in about one-third of sanctioned families, neither the parent nor children were receiving Medicaid, and that in about 28% of sanctioned families, neither the parent nor children were receiving either Medicaid or employer-based coverage. As Iowa’s program was originally designed, a family that did not comply with requirements would enter into a “Limited Benefit Plan,” in which the family would receive the same level of assistance for a three month period, receive reduced assistance for another three months, and then enter into a six month period of ineligibility; during this time, the family should have remained Medicaid-eligible if financially eligible, although families entering employment while subject to a Limited Benefit Plan (LBP) would not qualify for transitional Medicaid. The evaluation included a survey of families in Months 10 or 11. By that point, most (52.6%) families whose assistance was terminated under the LBP rules had been employed at least once since losing cash assistance. For those who had been employed, their most recent job had offered health insurance in 36% of the cases, though only 11% of the employed had actually received employer-based insurance.³⁰ In total, then, about 5.6% of respondents (10.6% of the 52.6% who had entered employment) were receiving employer-based health coverage, and a total of 66.4% of respondents were receiving Medicaid. Thus, it appears that about 28% of those under sanction were not receiving either Medicaid or employer-based health care coverage.

An even larger drop in Medicaid receipt after sanctioning was found in Michigan. Michigan conducted a study examining the first 168 cases that received full-family sanctions when Michigan began to implement such sanctions in April 1996. Of the cases, almost a quarter (24%) were either reopened or in pending status. However, of those still closed, 41% were not active for Medicaid.³¹ Michigan officials note, however, that the sanction population may be significantly different from the overall population receiving cash assistance, and that the growth in the average number of individuals receiving Medicaid through Michigan’s transitional Medicaid program and Healthy Kids program in 1998 substantially exceeds the reduction in the number of individuals receiving TANF assistance.

C. Why would exiters lose Medicaid?

The exit/sanction studies make clear that a substantial share of children and parents leaving AFDC/TANF lose Medicaid, either immediately or in a short period of time. The studies do not, however, offer any explanation of why this Medicaid drop occurs. There are several possible explanations and different explanations may apply to different states or even to different offices. In addition, whatever the reasons for the drops in enrollment under prior law, a state wishing to prevent this result can, to a significant extent, prevent comparable drops under TANF through the state’s choices in implementing Section 1931 eligibility.

Some of the possible reasons for the drop in Medicaid enrollment after leaving AFDC/TANF are:

• Family members may no longer be eligible. This is less likely to be the explanation for younger children, though it may explain some of the drop for parents and older children. As noted, the principal pathway to continued eligibility for parents and older children has been transitional Medicaid. However, under AFDC, transitional Medicaid would only have been available to those leaving AFDC due to employment or child or spousal support, and families often exit for other reasons. If the family did not exit due to employment, the family’s subsequent employment would not be sufficient to result in eligibility for transitional Medicaid. Even if the family exited AFDC due to employment, the family might not have qualified for transitional Medicaid if, for example, the family had not received AFDC for at least three of the last six months before exiting due to employment. And, once the family begins receiving transitional Medicaid, the family may lose eligibility for various reasons.³²
• Family members may not seek transitional Medicaid because they do not know about it. In South Carolina’s most recent exit study, 84% of respondents knew that children could continue to get Medicaid after leaving welfare but only 55% knew that adults who left welfare for work might continue to get Medicaid. Under the law, a state has an obligation to determine continuing eligibility even if the family does not request it, but a parent who does not know about transitional Medicaid may not understand the importance of reporting that she is leaving assistance due to employment.
• States may not code families as leaving assistance due to employment although that is the reason for the exit. For example, in Maryland’s exit study (which does not provide information on health care coverage), 11.2% of a sample of closed cases had been coded as closed because “payee started work or has higher earnings” while state employment and wage data indicated that at least half of payees were working in the quarter in which they left assistance.³³
• State procedures may erroneously terminate Medicaid or not provide for an effective mechanism to determine continuing eligibility. For example, North Carolina officials recently announced their intention to investigate whether local social services workers erroneously cut off Medicaid for 24,000 children who were no longer receiving Medicaid two months after their family stopped receiving TANF.³⁴
• Parents may be discouraged or confused after loss of TANF assistance. Several researchers who were involved in conducting exit studies raised the possibility that after TANF assistance was terminated, families might fail to provide needed information for Medicaid redeterminations or choose not to do so because they wanted no further contact with the state or might even be confused as to whether Medicaid for family members had been terminated. A recent review of the impact of federal welfare changes on Medicaid noted that several states had acknowledged that problems in the redetermination process could be impacting Medicaid continuations.³⁵

Whatever the reasons under prior law, it is important to appreciate that at least some of the drop-off in Medicaid enrollment can be prevented through attention to state administrative procedures and by state choices in implementing the Section 1931 eligibility criteria.

In attending to administrative procedures, a state can focus on outreach efforts and on attention to those stages at which drop-off or non-enrollment is most likely to occur. For example:

• Massachusetts indicates that in the last two years, the state has expanded automatic enrollment of closed AFDC/TANF cases into the MassHealth (Medicaid) Program to extend to all closed AFDC/TANF case closings. In addition, the state indicates that it has undertaken an extensive marketing campaign to inform low income families about the availability of health insurance through the MassHealth Program, and has begun an automated outreach process to recipients denied eligibility for TANF at the point of application for assistance.
• South Carolina indicates that after becoming aware of initial evidence of problems in ensuring uninterrupted Medicaid coverage, the state took measures to improve receipt of Medicaid for eligible families. The agency began showing a videotape to recipients to explain how and when support services continue after closure of the welfare case. Case managers were instructed to question clients who request voluntary closure of assistance cases to determine if the client had become employed; if earnings were verified, the case would be closed for earnings rather than voluntary closure so that the family could qualify for transitional benefits. The state’s efforts may have resulted in increased awareness of the availability of continued Medicaid benefits; in quarterly surveys, the share of respondents indicating awareness that children could continue to get Medicaid after leaving welfare increased from 79% to 84% between the first and third surveys; the share indicating awareness that adults leaving welfare for work may continue to get Medicaid increased from 40% to 55%.³⁶
• Indiana indicates that it has initiated an extensive outreach effort for Medicaid-eligible children that includes efforts to enroll children through sites such as health clinics, day care centers, schools, hospitals, and that the state has begun planning a strong media campaign for its outreach.³⁷

As noted earlier, under Section 1931, a family’s Medicaid eligibility no longer is based on whether the family receives TANF and a state is free to broaden the effective income and resource rules that determine eligibility under Section 1931.³⁸ Thus, if a state wishes to ensure that family members continue to be eligible for Medicaid after entering low-wage employment, the state may do so under Section 1931. A continuation of Section 1931 eligibility for those entering low-wage jobs would address some of the problems presented by the eligibility restrictions and administrative requirements of transitional Medicaid.³⁹ Moreover, it could help to address the problems presented by the limited receipt of employer-based health care for families exiting TANF due to employment.

The TANF exit studies underscore the importance of using Section 1931 to broaden Medicaid eligibility for working poor families. Without such a broadening of eligibility, it seems likely that one consequence of TANF implementation will be fewer families receiving TANF, more families engaged in employment, and yet reduced health care coverage for poor parents and children.

This paper was prepared for the Kaiser Commission on Medicaid and the Uninsured by Mark Greenberg, Center for Law and Social Policy. The author would like to thank the Kaiser Family Foundation for their support of this project and Cindy Mann, Jocelyn Guyer, and all state officials who reviewed and commented on this paper.

¹ A set of eligibility rules limited when and how long families could qualify for transitional Medicaid. Among the most significant, the family must have received AFDC for three of the last six months before exiting due to hours of employment, earnings, or loss of AFDC earnings disregards; and, in order to receive transitional Medicaid for the entire twelve months, the family would need to meet quarterly reporting requirements, maintain employment and have earnings not exceeding 185% of poverty. For a detailed discussion of transitional Medicaid rules under AFDC, see Greenberg, The JOBS Program: Answers and Questions (2nd ed., Center for Law and Social Policy, 1992), pp. 245-263.

² More precisely, the income and resource requirement is that the individual must meet the income and resource standards for determining AFDC eligibility under the State AFDC Plan in effect on July 16, 1996, using the income and resource methodologies under that plan. The family composition rules are the AFDC definition of “dependent child” and the AFDC listing of the relatives living with a dependent child who could qualify for assistance. As a practical matter, single parent families and two-parent families that met prior AFDC-UP or AFDC-Incapacity rules will meet the family composition rules States wishing to broaden the circumstances under which two-parent families meet the family composition rules may do so by modifying the definition of when a two-parent family is considered to be “unemployed.” See 63 Fed. Reg. 42270-75 (August 7, 1998).

³ The law allows a state to: lower its income standards, but not below the standards applicable under its AFDC state plan on May 1, 1988; increase its income or resource standards by an amount not exceeding the Consumer Price Index; use “less restrictive” income and resource methodologies than those used under the plan as of July 16, 1996; and if the state had had an AFDC waiver that had the effect of expanding Medicaid eligibility, the state may elect to continue that policy for Section 1931 purposes even after the time that the waiver would have expired.

⁴ See Peller and Shaner, Medicaid Eligibility Standards for Low-Income Families and Children: State Implementation of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (American Public Welfare Association, May 1998).

⁵ For example, a study of the caseload decline in Alabama concluded that the most important variable in explaining the decline was a reduction in the percentage of applications that were approved for assistance, with the percentage of approvals falling from 63% to 46% over an eighteen month period. Dawson, Demystifying the Caseload Reduction (Alabama Arise, 1997).

⁶ The HHS Temporary Assistance for Needy Families (TANF) Program First Annual Report to Congress (August 1998) reports that in recent years, the likelihood that an AFDC/TANF adult would be employed in the next year has increased. Of adults receiving AFDC in 1991, 18.8% were employed in March 1992; the share of previous-year recipients who were employed the next March increased each subsequent year, reaching 24.6% in 1996 and then increased to 31.5% in 1997.

⁷ Gallagher, et al., One Year After Federal Welfare Reform: A Description of State Temporary Assistance for Needy Families (TANF) Decisions as of October 1997 (Urban Institute, May 1998), p. V-6.

⁸ South Carolina Department of Social Services, Division of Program Quality Assurance, Survey of Former Family Independence Clients: Cases Closed During April through June 1997 (June 1998), p 11.

⁹ The South Carolina figures reported for this most recent period reflect an improvement in health care coverage as compared to earlier periods in which the same questions were asked. South Carolina’s survey is the third in a series of surveys looking at the circumstances of a sample of families after leaving cash assistance. In the first study (focusing on exiters from October-December 1996), 66% of children were covered by Medicaid and 81% had some form of coverage; in the second study (focusing on exiters from January-March 1997), 71% of children were covered by Medicaid and 81% had some form of coverage. As to adults, in the first study, 28% were covered by Medicaid and 47% had some form of coverage; in the second study, 27% were covered by Medicaid and 37% had some form of coverage. See South Carolina Department of Social Services, Division of Program Quality Assurance, Survey of Former Family Independence Clients: Cases Closed During October through December, 1996 (November 1997) and Survey of Former Family Independence Clients: Cases Closed During January through March 1997 (March 1998).

¹⁰ Bureau of Business and Economic Research, University of New Mexico, Survey of the New Mexico Closed-Case AFDC Recipients, July 1996 to June 1997 (September 1997).

¹¹ Fein, The Indiana Welfare Reform Evaluation: Who Is On and Who is Off? (Abt Associates, September 1997) at pp. 7-9.

¹² At the time of the survey, 64% of respondents not receiving TANF were working, and of those working 62% reported that they were in jobs offering health insurance. However, the survey does not indicate what share of families were actually receiving employment-based health insurance. Fein, The Indiana Welfare Reform Evaluation: Who Is On and Who is Off? (Abt Associates, September 1997) at pp. 7-9.

¹³ Management Reports and Data Analysis, DSHS Economic Services Administration, Washington’s TANF Single Parent Families Shortly After Welfare: Survey of Families Which Exited TANF between December 1997 and March 1998 (July 1998), supplemented by unpublished responses to survey questions.

¹⁴ Some part of the difference between these two figures may be attributable to the possibility that respondents gave different responses to different questions; some part may be attributable to the difference between coverage in current employment and coverage in employment at some point in the prior twelve months.

¹⁵ Management Reports and Data Analysis, DSHS Economic Services Administration, Washington’s TANF Single Parent Families Shortly After Welfare: Survey of Families Which Exited TANF between December 1997 and March 1998 (July 1998), supplemented by unpublished responses to survey questions.

¹⁶ Among those reporting being worse off, 49% reported no adult heath coverage, and 30% reported no child coverage. Among those reporting being about the same, 36% reported no adult health coverage and 21% reported no child coverage. Among those reporting being better off, 30% reported no adult health coverage and 16% reported no child coverage. Overall, 60% reported being better off, 22% reported being about the same, and 18% reported being worse off. Of those saying they were worse off 52% said they were likely to return to welfare within the next six months.

¹⁷ DSHS Economic Services Administration, A Baseline Analysis of TANF One-Parent Families: Findings from 1997 Client Survey (February 1998), at p.6.

¹⁸ DSHS Economic Services Administration, A Baseline Analysis of TANF One-Parent Families: Findings from 1997 Client Survey (February 1998), at p.6.

¹⁹ ancoske, Kemp and Lindhorts, Exiting Welfare: The Experiences of Families in Metro New Orleans (Welfare Reform Research Project, School of Social Work, Southern University at New Orleans, June 1998).

²⁰ Mancoske, Kemp and Lindhorts, Exiting Welfare: The Experiences of Families in Metro New Orleans (Welfare Reform Research Project, School of Social Work, Southern University at New Orleans, June 1998).

²¹ Pawasarat, Employment and Earnings of Milwaukee County Single Parent AFDC Families: Establishing Benchmarks for Measuring Employment Outcomes Under “W-2” (University of Wisconsin-Milwaukee, Employment and Training Institute).

²² Pawasarat, Employment and Earnings of Milwaukee County Single Parent AFDC Families: Establishing Benchmarks for Measuring Employment Outcomes Under “W-2” (University of Wisconsin-Milwaukee, Employment and Training Institute). The actual level of non-receipt may be somewhat higher because Medicaid status is not available for 20% of cases in which the family had ceased receiving AFDC and was still receiving Food Stamps. Also, note that the family was coded as receiving Medicaid if any family member received Medicaid.

²³ Summary of Surveys of Welfare Recipients Employed or Sanctioned for Noncompliance (March 1998) prepared for Tennessee Department of Human Services by Bureau of Business and Economic Research/Center for Manpower Studies, University of Tennessee, Memphis, Tennessee (March 1998).

²⁴ One additional state study of exiters, from Kentucky, found that almost half of children were reported to have no health care coverage, though the low survey response rate and possible ambiguities in the wording of questions make it difficult to be confident of the survey results. Cummings and Nelson, From Welfare to Work: Welfare Reform in Kentucky (Center for Policy Research and Evaluation, Urban Studies Institute, University of Louisville, January 1998). A telephone survey was conducted in December 1997 of former TANF recipients who had been discontinued between January and November 1997. The response rate was low: only 17% (560 respondents out of 3225 attempts). About half (49%) of respondents reported that they had left assistance because they got a job. The survey asked “Are your children covered by health insurance?” According to respondents, almost half (48%) of children were not covered by health insurance; 49.5% of children were covered. However, there may be some ambiguity as to whether respondents whose children were covered by Medicaid would answer yes to the question. Another question included Medicaid on the list in a question, “Do you currently receive any of the following benefits…?” Only 28.4% of respondents responded yes, but the question could have been interpreted as being directed only at the adult respondent.

²⁵ Executive Summary, The JOBS Evaluation: Early Findings on Program Impacts in Three Sites (U. S. Dept. Of Health and Human Services, 1995), Table ES-1. In sites emphasizing a “human capital development” approach, at the two-year point, the employment impacts were smaller and not statistically significant (35.1% of experimentals and 32.4% of controls were employed); there was also a small, and not statistically significant, difference in the percent covered by Medicaid or private health insurance in the prior month (79.2% of experimentals, 81.8% of controls. A subsequent report provides additional information on employment and other impacts in the JOBS evaluation sites, but the subsequent report does not provide further information on Medicaid/health coverage impacts. See Hamilton, et al., National Evaluation of Welfare-to-Work Strategies, Two-Year Findings on the Labor Force Attachment and Human Capital Development Programs in Three Sites (U.S. Department of Health and Human Services and U.S. Department of Education, December 1997).

²⁶ Kemple, Friedlander, and Fellerath, Florida’s Project Independence: Benefits, Costs, and Two-Year Impacts of Florida’s JOBS Program (Manpower Demonstration Research Corp., 1995), p. 106.

²⁷ Riccio, Friedlander, and Freedman, GAIN: Benefits, Costs, and Three-Year Impacts of a Welfare-to-Work Program (Manpower Demonstration Research Corporation, 1994), p.178.

²⁸ GAO/HEHS-97-74, Welfare Reform: States’ Early Experiences with Benefit Termination (May 1997), pp. 42-43.

²⁹ Fraker, Nixon, Losby, Prindle, and Else, Iowa’s Limited Benefit Plan (Mathematica Policy Research, May 1997), at p. 74. FIA describes the agreement between the individual and state specified goals, activities, and time frames for enacting these goals and the ultimate goal of self-sufficiency.

³⁰ Of the 36.4% who had had health insurance available in their most recent job, 10.^% received the insurance, 10.6% did not receive the insurance due to its costs; and 15.2% did not receive it for another reason. Fraker, Nixon, Losby, Prindle, and Else, Iowa’s Limited Benefit Plan (Mathematica Policy Research, May 1997), at p. 74.

³¹ Colville, Moore, Smith and Smucker, A Study of AFDC Case Closures Due to JOBS Sanctions, April 1996 AFDC Case Closures (Michigan Family Independence Agency, May 1997).

³² For example, Kentucky officials note that they recently conducted a review of all cases discontinued effective March 1998 for a reason that would result in transitional Medicaid eligibility; 706 cases were identified, and transitional Medicaid had been established in each case. The next month, 51 of those cases were identified as losing transitional Medicaid eligibility, and a review of a random sample of half of those cases found the terminations to be valid, with the most frequent reasons being recipient request for termination, recipient having moved out-of-state, and reinstatement of TANF eligibility.

³³ Born, Life After Welfare: Second Interim Report (School of Social Work, University of Maryland, March 1998)., pp. 18-19.

³⁴ See Children’s Loss of Medicaid Probed, Raleigh News & Observer, June 12, 1998.

³⁵ Ellwood and Ku, Welfare and Immigration Reforms: Unintended Side Effects for Medicaid (Health Affairs, May/June 1998, pp. 137, 141).

³⁶ See South Carolina Department of Social Services, Division of Program Quality Assurance, Survey of Former Family Independence Clients: Cases Closed During April through June 1997 (June 1998), p. 20.

³⁷ Most other states responding to a preliminary draft of this report also emphasized ongoing or newly initiated outreach efforts.

³⁸ Technically, the mechanism that a state could use would be to adopt a “less restrictive methodology” for calculating income eligibility for Section 1931-based Medicaid. A state wishing to ensure that low-wage working families retained Medicaid eligibility might provide, for example, that the first $500 (or some other figure) from earnings would not be counted in determining whether the family met the income standards applicable to Section 1931 eligibility. The practical effect of this less restrictive methodology would be a broadening of the circumstances where low-wage working families qualified for Section 1931 Medicaid. For a more detailed discussion of state options in expanding coverage through use of Section 1931, see Guyer and Mann, Taking the Next Step: States Can Now Expand Health Coverage to Low-Income Working Parents Through Medicaid (Center on Budget and Policy Priorities, July 1998), http://www.cbpp.org/702mcaid.html.

³⁹ For example, Washington State has implemented a more generous earned income disregard (50% of gross earnings), more liberal treatment of assets, and broader eligibility for two-parent families under TANF, and has extended those same standards to Section 1931 eligibility. Return to top

Policy Brief Part 1 Part 2Library Index

Part 3

What Explains the Coverage Decline?

Rapidly rising health care costs-or, more precisely, employers’ responses to costs-have contributed to the widespread erosion of employer coverage. As employers have shifted costs to workers, participation has dropped. Low-wage workers have been disproportionately affected by rising costs, losing access to coverage as well as finding participation more difficult. Their problems have been exacerbated by structural changes in labor markets, which have weakened the tie between jobs and health insurance.⁹

Constrained Employer Spending. A key factor behind the decline in employer coverage has been the rapid rise in health care costs. The cost of health insurance grew rapidly in the 1980s and early 1990s, far exceeding the growth in consumer prices generally. Between 1988 and 1996, the average premium for family coverage rose 9.8% per year, the premium for individual coverage increased 7.5% per year, while prices overall increased about 4% annually.¹⁰

Employers’ primary response to rapidly rising health care costs has not been to drop health care coverage for full-time workers. However, employers have constrained spending by requiring workers to pay a larger share of health insurance premiums, by tightening eligibility requirements for part-time workers (whose coverage has long been restricted) and, increasingly, in recent years, by replacing regular full-time employees with part-time and contingent workers.¹¹

Workers’ average monthly contributions for single and family coverage rose steadily between 1988 and 1996 as workers paid a larger share of higher premiums.¹² In fact, as shown in Figure 9, workers’ contributions rose more rapidly than premiums as employers shifted more of the costs of health insurance to workers, especially for non-family coverage. While average premiums for non-family coverage rose an average of 7.5% per year between 1988 and 1996, employees’ contributions rose much more rapidly–increasing by 18.3% per year.¹³

As employers have shifted costs to workers, some workers have dropped coverage, while those who have kept coverage are paying more. As shown in Figure 10, the proportion of workers participating in employer plans to which they had access fell from 93% in 1987 to 89% in 1996. Access to employer coverage was basically unchanged over this period–about 82 percent. Although the fact remains that most (about 70 percent) of the working uninsured lack access to coverage, the decline in coverage between 1987 and 1996 mostly reflects a drop in participation.¹⁴

This overall pattern obscures a worsening of access, as well as participation, for low-wage workers. Although participation rates have dropped most rapidly for the lowest wage workers, access to employer coverage has also declined for these workers. For example, among workers earning more than $15 per hour, the proportion with access to employer coverage increased from 92% in 1987 to 96% in 1996. In contrast, the proportion of low-wage workers (those earning less than $7 per hour) with access to employer coverage declined 5 percentage points over this same time period, from 60% to 55% [Table 2]. The large drop in coverage rates for the lowest wages workers is thus explained by a combination of declining participation and a decline in employer offerings.

Changes in Low-wage Labor Markets. For low-wage workers, costs and employer cost containment are not the only factors producing this deterioration. Structural changes in labor markets, that have occurred throughout the 1980s and 1990s, have contributed to the decline in coverage.

The main change in the labor market over the past two decades has been the widespread deterioration of wages, especially for those workers who initially had low wages, were without a college degree, were in blue collar or service occupations, or were in younger age brackets.¹⁵ From 1989 to 1996, the real hourly wage of the typical (median) worker fell 5.2%, while the wages of high-wage workers (90th percentile) increased 0.4%, and wages for low-wage workers (20th percentile) declined by 2.3%. Among low-wage men, the wage declines were even greater. Wages for low-wage men fell 6.4% between 1989-96.¹⁶ That is, wages for workers at the middle and at the bottom of the pay scale have not only failed to keep up with health care costs, they have declined in real terms. The large drop in participation rates for the lowest wage workers is understandable in light of the deterioration in wages for these workers. Employer actions that have led to coverage declines for all workers have thus had a disproportionate effect on the lowest wage workers.

Table 2 Change in Access, Family Take-up and Coverage, by Wage1987-1996 Wage Level 1987 1996 Change 1987-96

Coverage $15 87 90 +3

Access to Employer Coverage* $15 92 96 +4

Family Take-Up Rate** $15 94 94 0 * Percent of workers with access to job-based insurance through their own employer or a family member s employer.** Percent of workers with access to job-based insurance who are actually covered by it.Source: Cooper and Schone, 1997.

The decline in access for low-wage workers also is rooted in structural labor market changes. Shifts in employment to low-paying sectors may account for most of this decline in access. As jobs have shifted from high-paying industries like manufacturing to low-paying sectors like retail trade and services, health insurance coverage has declined.¹⁷ In addition, the proportion of the workforce in “nontraditional” work arrangements–such as regular part-time work, contingent work, and self-employment–has grown in the past decade. The expansion of employment in these jobs is not large enough to explain much of the decline in coverage; nevertheless, since these jobs are less likely to come with health insurance benefits, the expansion of nontraditional work has contributed to the overall decline in coverage.¹⁸

Conclusion

Over the past decade, there has been a decline in employment-based health insurance coverage. The fall in coverage is a widespread phenomenon that goes beyond low-income families. However, often overlooked is that low-wage workers and low-income families–who started out at a disadvantage, with low rates of coverage–have borne the brunt of the decline. The gap in coverage between low-wage and high-wage workers has grown between 1987 and 1996 because the decline in coverage has been greatest for low-wage workers. Although Medicaid plays an important role in providing insurance coverage for many low-income families, including working families, Medicaid’s eligibility levels are constrained. Workers without children are, for the most part, precluded from coverage. Beyond Medicaid’s reach, therefore, many low-income working families are likely to be uninsured.

This paper was prepared for the Kaiser Commission on Medicaid and the Uninsured by Ellen O’Brien and Judith Feder, Institute for Health Care Research and Policy, Georgetown University.

Notes

¹ In this Issue Paper, we rely on Current Population Survey estimates of employer health coverage and trends. Estimates of the proportion of families with various sources of insurance by income level are based on the Urban Institute’s TRIM-II model, which produces a different total estimate because it adjusts for the undercount of Medicaid beneficiaries in the CPS.

² Workers ages 21-64 who are not self-employed.

³ The tax treatment of employment-based health insurance provides an incentive for employers to provide compensation to workers in the form of health coverage rather than in the form of wages subject to current taxation. The tax preference that the exclusion provides is substantial and has resulted in widespread access to health coverage. Yet, despite this fact–as this Paper describes–coverage rates for the lowest wage workers have traditionally been quite low and have declined significantly in the past two decades. The specific provisions of the exclusion provide a partial explanation. To qualify for the exclusion of employer-provided health coverage, employers’ health plans do not need to cover all workers. Although the tax code requires “non-discrimination”–a self-insured health plan may not discriminate in favor of highly compensated individuals as to ability to participate–employees who have not completed three years of service, those under age 25, and part-time or seasonal employees may be excluded from consideration. Moreover, insured health plans, as opposed to self-insured plans, are generally not subject to non-discrimination rules.

⁴ According to the Employee Benefits Supplement to the Current Population Survey, 51 million of the nearly 89 million private wage and salary workers in 1993 (or about 57% of private industry workers) had health care coverage through their employer. Of the 38 million workers without such coverage, about 50% were in firms that did not offer coverage, and 40% were in firms that offered benefits to at least some employees. (Information on whether the employer sponsored a health plan was not available for the remaining 10% of workers). See tabulations of the CPS Employee Benefits Supplement in U.S. Department of Labor. Report on the American Workforce (Washington, DC: GPO, 1995).

⁵ Based on an average premium for family coverage of $5,349 in 1996. KPMG Peat Marwick data cited in AFL-CIO, Paying More and Losing Ground: How Employer Cost-Shifting is Eroding Coverage of Working Families (Washington, DC: AFL-CIO,1998), p. 16.

⁶ These are “family take-up rates.” They measure the proportion of workers who take-up any employer plan available to them — through their own employer or through a family member’s employer. Workers’ participation rates in their own employer plans are lower (63% of the lowest wage workers and 85% of the highest wage workers participated in own employer plans they were offered) since some workers turn down their employer’s plan and choose to be covered under a family member’s plan.

⁷ Because of changes to the survey beginning with the March 1995 CPS, however, the estimates of employer coverage rates for 1994-96 are not comparable to data for prior years. The observed increase in employer coverage rates may be an artifact of changes in the survey questions.

⁸ John Holahan, Colin Winterbottom, and Shruti Rajan, “A Shifting Picture of Health Insurance Coverage,” Health Affairs 14(Winter 1995): 253-264.

⁹ On the more rapid drop in coverage for less educated workers see Peter Gottschalk, Trends in Wages and Health Insurance Status of Less Educated Workers. Menlo Park, CA: The Henry J. Kaiser Family Foundation; and Sherry Glied and Mark Stabile, “Graduation to Health Insurance Coverage: 1981-1996,” Working Paper 6276. (Cambridge, MA: National Bureau of Economic Research, 1997). Other studies of the decline in employer coverage include: Richard Kronick, “Health Insurance 1979-1989: The Frayed Connection between Employment and Insurance,” Inquiry 28(Winter 1991): 318-332; Deborah Chollet, “Employer-Based Health Insurance in a Changing Workforce,” Health Affairs 13(Spring 1, 1994): 315-26; Gregory Acs, “Trends in Health Insurance Coverage Between 1988 and 1991,” Inquiry 32(Spring 1995): 102-110; and Stephen Long and Joel Rogers, “Do Shifts Toward Service Industries, Part-time Work, and Self-Employment Explain the Rising Uninsured Rate?” Inquiry 32(Spring 1995): 111-117; and Paul Fronstin and Sarah Snider, “An Examination of the Decline in Employer Sponsored Health Insurance Between 1988 and 1993,” Inquiry 33(Winter 1996/1997): 317-325.

¹⁰ Data from KPMG Peat Marwick and Health Insurance Association of America, cited in General Accounting Office. “Private Health Insurance: Continued Erosion of Coverage Linked to Cost Pressures.” GAO/HEHS-97-122 (Washington, DC: GPO, 1997).

¹¹ See Arne Kalleberg, Edith Rassell, and Ken Hudson, et. al., Nonstandard Work, Substandard Jobs (Washington, DC: Economic Policy Institute, 1997) and Thomas Rice, Nadereh Pourat, Rebecka Levan, et. al., “Trends in Job-Based Health Insurance Coverage.” (Los Angeles, CA: UCLA Center for Health Policy Research, June 1998).

¹² The total nonfederal employer premium contribution fell from 85.1% to 83.9% between 1990 and 1996. In 1996 alone, this 1.2-percentage-point decrease in the employer’s share would represent a cost-shift of $3.6 billion to employees enrolled in employer-sponsored health plans. See Katherine R. Levit, Helen C. Lazenby, Bradley R. Braden, et. al. “National Health Spending Trends in 1996,” Health Affairs 17(January/February 1998), p. 46.

¹³ KPMG Peat Marwick data for 1991-1996 and HIAA data for 1988-1990 cited in AFL-CIO, “Paying More and Losing Ground: How Employer Cost-Shifting is Eroding Coverage of Working Families” (Washington, DC: AFL-CIO,1998), p. 16.

¹⁴ Philip Cooper and Barbara Schone. “More Offers, Fewer Takers for Employment Based Health Insurance: 1987 and 1996,” Health Affairs 16(November/December 1997): 142-149.

¹⁵ Lawrence Mishel, Jared Bernstein, and John Schmitt. The State of Working America, 1996-97 (Armonk, NY: M.E. Sharpe, 1997), p. 139.

¹⁶ Lawrence Mishel, Jared Bernstein, and John Scmitt. “Finally Real Wage Gains.” Issue Brief #127, July 17, 1998. Washington, DC: Economic Policy Institute.

¹⁷ See especially Chollet (1994).

¹⁸ See Arne Kalleberg, Edith Rassell, and Ken Hudson, et. al., Nonstandard Work, Substandard Jobs (Washington, DC: Economic Policy Institute, 1997). Return to top

Policy Brief Part 1 Part 2 Part 3Library Index

This paper provides an overview of Medicaid spending growth in 1996. It updates earlier analyses conducted by the Kaiser Commission on Medicaid and the Uninsured.

• Issue Paper
• Issue Paper

This 1998 partnership survey between KFF and Glamour explores experiences with and knowledge of STIs among men and women in the U.S.

This policy paper describes key requirements of consumer protection regulation under Medicare, Medicaid and federal and state laws as they apply to private health insurance. These include choice and availability of plans, disclosure of information, marketing, access, quality, and the grievance and appeals process. The discussion highlights differences and similarities across public programs and private insurance and compares public and private insurance protection with provisions of the Consumer Bill of Rights (CBRR) developed by the President’s Advisory Commission on Consumer Protection and Quality in the Health Care Industry.

• Report: Protection For Consumers In Managed Care Plans: A Comparison

HIPAA Compliance Strategies In California: Reforming the State’s Individual Health Insurance Market — Policy Brief

A policy brief on reform of the individual insurance market and implementation of the Health Insurance Portability and Accountability Act (HIPAA) in California. The brief is based, in part, on discussion at a California Health Policy Roundtable held in Sacramento, California on March 12, 1998.

Note: This publication is no longer in circulation. However, a copy may still exist in the Foundation’s internal library that could be reproduced. Please email order@kff.org if you would like to pursue this option.

This chartbook provides an overview of health care spending and trends in health plan enrollment. It highlights health insurance premiums and costs, health insurance benefits, the structure of the health care market. Data on the stock markets role within the health care industry and implications of health insurance trends for consumers and the safety net is also included.

• Chartbook

Health News Index July/August, 1998

The July/August 1998 edition of the Kaiser Family Foundation/Harvard Health News Index includes questions about major health stories covered in the news, including questions about Patients’ Rights and Medicare. The survey is based on a national random sample of 1,200 Americans which measures public knowledge of health stories covered by the news media during the previous month. The Health News Index is designed to help the news media and people in the health field gain a better understanding of which health stories in the news Americans are following and what they understand about those health issues. Every two months, Kaiser/Harvard issues a new index report.

This report presents findings based upon the KPMG health benefits survey of private and public employers and explores the extent of ERISA preemption on health plans covering U.S. workers. Included is estimated data on the total number of workers covered by fully and partly self-insured health plans in 1993 and 1995, a summary of the ERISA provisions and case law dealing with health plans and an analysis of potential changes to ERISA.

Note: This publication is no longer in circulation. However, a few copies may still exist in the Foundation’s internal library that could be xeroxed. Please contact us if you would like to pursue this option.

A national survey of 800 African Americans, plus an additional general population sample of 800 Americans, examining perceptions about the media’s coverage of health issues that most concern and impact African Americans. This survey was conducted jointly by the Foundation and the National Association of Black Journalists (NABJ) for presentation at the NABJ’s annual conference being held in Washington, DC on Friday, July 31st, 1998.