Employment-Based Health Benefits: Trends and Outlook

This Issue Brief discusses recent trends in and the future of employment-based health insurance benefits. It presents recent trends in sources of health insurance, access to health benefits, changes to benefit packages, and retiree health benefits. It discusses the reasons underlying the trends, presents the outlook for employment-based health insurance benefits, and includes a discussion of defined contribution health benefits.
The percentage of Americans under age 65 covered by employment-based health benefits has been increasing since 1994. Between 1994 and 1999, the percentage of children covered by an employment-based health plan increased from 58.1 percent to 61.5 percent. For adults, it rose from 66.1 percent to 67.6 percent, with the increase mainly occurring between 1997 and 1999. Between 1997 and 1999, the percentage of working adults with employment-based health insurance increased from 72.2 percent to 73.3 percent.
Despite rising health insurance costs, employers increasingly have been offering health benefits to workers. Between 1998 and 2000, the percentage of small firms offering health benefits increased from 54 percent to 67 percent.
Health insurance cost inflation has been increasing since 1998. Yet, employers have not started to shift recent cost increases onto workers. The percentage of the premium that workers have been asked to pay has not been increasing, while the benefits package has been improving.
The strong economy and low unemployment have had an effect not only on the likelihood that an employer offers health benefits and the percentage of the premium that workers pay, but also on certain aspects of the benefits package.
As a result of FAS 106, many employers began a major overhaul of their retiree health benefits program, and some dropped the benefits completely. Most employers continuing to offer retiree health benefits have made changes in the benefit package. The most common change is in cost-sharing provisions, with employers asking retirees to pick up a greater share of the cost of coverage. The recent case Erie County Retirees Association v. County of Erie may accelerate changes to retiree health benefit programs.
Two factors will likely play primary roles in driving the future of the employment-based health benefits system: health benefit costs and labor market conditions.
As long as health benefit costs continue to increase, employers will seek ways to reduce these costs. However, as long as unemployment remains low, employers will likely be unable to significantly modify existing health benefit programs.