The demand for health insurance coverage by low-income workers: can reduced premiums achieve full coverage?

To assess the degree to which premium reductions will increase the participation in employer-sponsored health plans by low-income workers who are employed in small businesses.

Sample of workers in small business (25 or fewer employees) in seven metropolitan areas. The data were gathered as part of the Small Business Benefits Survey, a telephone survey of small business conducted between October 1992 and February 1993.

Probit regressions were used to estimate the demand for health insurance coverage by low-income workers. Predictions based on these findings were made to assess the extent to which premium reductions might increase coverage rates.

Workers included in the sample were selected, at random, from a randomly generated set of firms drawn from Dun and Bradstreet's DMI (Dun's Market Inclusion). The response rate was 81 percent.

Participation in employer-sponsored plans is high when coverage is offered. However, even when coverage is offered to employees who have no other source of insurance, participation is not universal. Although premium reductions will increase participation in employer-sponsored plans, even large subsidies will not induce all workers to participate in employer-sponsored plans. For workers eligible to participate, subsidies as high as 75 percent of premiums are estimated to increase participation rates from 89.0 percent to 92.6 percent. For workers in firms that do not sponsor plans, similar subsidies are projected to achieve only modest increases in coverage above that which would be observed if the workers had access to plans at unsubsidized, group market rates.

Policies that rely on voluntary purchase of coverage to reduce the number of uninsured will have only modest success.