The erosion of purchased health insurance

In this paper, we trace the decline of purchased health insurance and examine the reasons for the rapid growth of self-insurance between 1981 and 1985. Then, using nationally representative data on benefits in larger private sector firms, we examine the changing content of self-insured plans and compare them with fully insured conventional plans from commercial insurers and Blue Cross and Blue Shield Plans. Between 1981 and 1985, the percentage of employees in mid- to large-sized firms covered by self-insurance grew from 21% to 42%. Self-insured plans cost more than purchased plans in 1981, and continued to cost more in 1985. Their higher premiums were not due to richer benefit packages. Indeed, they less often covered "fringe" services and required greater cost sharing via higher deductibles and coinsurance. Upon considering both the efficiency and the equity issues of self-insurance, we sound a cautionary note on this growing trend.