Preference diversity and the breadth of employee health insurance options

To examine the effect of worker heterogeneity, firm size, and establishment size on the breadth of employer health insurance offerings.

The data were drawn from the 1993 Robert Wood Johnson Foundation Employer Health Insurance Survey of 22,000 business establishments selected randomly from ten states.

The analysis was cross-sectional, using ordered probit models to relate the breadth of plan offerings to firm characteristics.

Firms with more diverse workforces offered a more diverse set of health insurance options. Firm and establishment size independently influenced the breadth of plan offerings.

Employers are responsive to worker heterogeneity when determining the breadth of their health insurance offerings. However, diseconomies of scale in the purchase and administration of health insurance appear to limit the extent to which small employers can accommodate diverse worker preferences.