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Prognosis worsens for workers’ health care: Fourth consecutive year of decline in employer-provided

Briefing Paper #167

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Prognosis worsens for workers’ health care

Fourth consecutive year of decline in employer-provided insurance coverage

by Elise Gould

The number of people without health insurance grew significantly for the fourth year in a row. Nearly 46 million Americans were uninsured in 2004—up six million since 2000. The rate of those without insurance for the whole year has grown 1.5 percentage points during this period, from 14.2% in 2000 to 15.7% in 2004.

What the overall uninsured numbers mask, however, is a distinct shift from insurance coverage through the private sector to insurance coverage through the public sector, particularly for children. The safety net health programs—Medicaid and the State Children’s Health Insurance Program (SCHIP)—have kept millions of families insured when their employment-based benefits were lost.

The percent of people with employer-provided health insurance also fell for the fourth year in a row. Nearly 3.7 million fewer people had employer-provided insurance in 2004 than in 2000. However, that decline in the number of people with employer-provided insurance does not take into account population growth. As many as 11 million more people would have had employer-provided health insurance in 2004 if the coverage rate had remained at the 2000 level. The rate during this period declined from 63.6% to 59.8% (a 3.8 percentage-point drop). At the same time, the Medicaid rolls (including SCHIP) have increased by nearly eight million, with a coverage increase of 2.3 percentage points.

This phenomenon of replacing employer-provided health insurance with public-sector health coverage begs the question: is this a positive way to meet the United States’ health care challenges? On a positive note, this trend demonstrates that the safety net is working for a small share of the population. Workers and their families at the low end of the income distribution have limited if any access to employer-provided insurance. During a weak labor market, millions of workers lose their jobs or are forced to take jobs without benefits and lose their already tenuous connection to the employer-provided health insurance system. Medicaid and SCHIP have saved millions from financial ruin or untreated illness.

On the down side, the government did not pick up coverage for everybody who lost insurance. Current public insurance programs are particularly strong at covering children, the elderly, and people with disabilities, but many Americans have been left out, including many in the middle class who lost coverage at a time when such workers already face the challenges of a weak labor market and stagnant wages. While most children were able to make up their losses in employer health coverage through the public system, many prime-age working adults were left stranded by the drop in coverage and fell into the ranks of the uninsured. Middle-income Americans between the ages of 25 and 54 were 26.7% more likely to be uninsured in 2004 than in 2000.

The employer market has been the primary method of obtaining health insurance in this country. Its strength lies in the effective sharing of risk among individuals. Unfortunately, market pressures are exacerbating the problem. During periods of weak labor demand, workers do not have the bargaining power to bid up their wages or benefits. During a period of simultaneous weak bargaining power and rising health costs, employers demand that workers pay for higher premiums or pay more out-of-pocket for their care. Furthermore, by pushing workers out of the employer system and into the public one, employers are shifting the cost of insuring their workers onto taxpayers.

While some employers have transferred the responsibility of insuring their employees onto the public system (or have simply let these workers drop into the ranks of the uninsured), some local governments have begun to adopt a “pay-or-play”* strategy to keep employers accountable to their workers’ needs.1 However, these helpful policies currently exist only in very select areas at the local level. On the federal level, policies are actually making such accountability measures harder. Sweeping cuts in the tax benefits of employer-provided health insurance are being considered by President Bush’s tax advisory commission,2 changes that could substantially destabilize an already weakened health insurance system.

To add insult to injury, Congress appears poised to cut Medicaid and other related safety net programs by $35 billion.3 Policy measures that cut holes in the safety net even as employer-provided coverage is declining will be detrimental to the health care of this country. Limited access to affordable health insurance markets will cause the number of uninsured to rise, leading to inadequate access to health care. More people will continue to fall through the cracks if the employer-system is weakened without a sufficient replacement.

This report’s central findings regarding health insurance coverage include:

  • The number of uninsured Americans rose by over six million, from 39.8 million in 2000 to 45.8 million in 2004. This increase was due primarily to the precipitous decline in employer-provided health coverage for workers and their families.
  • The downward trend in the rate of employer-provided health insurance continued from 2003 to 2004, during a period in which the economy created 1.5 million jobs—either many of these new jobs did not include health coverage or existing jobs shed coverage during the year (or both).
  • Jobholders experienced a significant decline in health insurance coverage from 2000 to 2004. In 2000, 58.9% of workers had employer-provided coverage, whereas only 55.9% of workers had coverage in 2004.
  • No category of workers was insulated from loss of coverage. Even full-time, full-year workers and workers with a college degree experienced declines in coverage between 2000 and 2004. Full-time, full-year workers’ coverage rates fell by 2.3 percentage points and college graduates’ coverage rates fell by 2.8 percentage points.
  • Workers among the bottom 20% of hourly wage earners were the least likely to have employer coverage; 24.4% of the bottom quintile were covered compared to 77.5% for workers in the highest wage quintile.
  • Children experienced the sharpest declines in employer-provided health insurance coverage. In 2000, 65.6% of children had employer-provided coverage, whereas in 2004 only 60.8% did, a fall of nearly five percentage points. Fortunately, existing government insurance (i.e., Medicaid and State Children’s Health Insurance Programs) increased coverage to children by six percentage points, enough to offset the sharp decline in employer coverage for this group.
  • Unlike the trend with children, the fall in employer-provided coverage for prime-age working adults was not accompanied by a sufficient increase in public coverage.
  • The decline in employer coverage was pervasive and felt throughout the country. When comparing the 1999-2000 and 2003-04 periods, Maryland, Maine, Missouri, North Carolina, and Wisconsin all experienced losses in coverage rates in excess of 6.0 percentage points. Not a single state experienced a statistically significant increase in coverage.

Declines in overall employer-provided coverage

About 3.7 million people—including workers, their spouses, and their children—lost employer-provided health insurance between 2000 and 2004. The percent with employer-provided health insurance fell from 63.6% in 2000 to 59.8% in 2004, a decline of 3.8 percentage points.

As shown in Table 1, these declines in covera
ge occurred across all lines: by age, sex, race, education, and family income level. Some people, however, were more hurt than others by the declines. Those with only a high school education and those in the second-to-lowest family income quintile were the hardest hit in the last four years. High school graduates were not only less likely than college graduates to have employer-provided insurance (55.3% vs. 77.5%), but they experienced much greater declines (5.6 vs. 2.6 percentage-point drops). (In this analysis, children under 18 are assigned the education level of their family head.)

Table 1

Health insurance coverage rates were also dramatically different by age and by race and ethnicity. Children under 18, adults 18-24 years old, and adults 25-54 years old experienced significant declines in employer-provided health coverage of 4.8, 6.4, and 5.1 percentage points, respectively. The rise in employer-provided coverage for older Americans may be attributed to their increased employment-to-population ratios during this period. In 2004, 65.7% of whites had employer-provided coverage as compared to 49.9% of blacks and 41.1% of Hispanics.

The lowest rates of employer-provided coverage occurred within families with the lowest incomes. Only about one in five individuals in families in the bottom 20% of earners had employer-provided health insurance, whereas more than four in five individuals in families at the highest 20% of earners had such coverage. Individuals in families in the second quintile, those with approximately $20,000-38,000 in yearly income, saw the largest declines in coverage. Their coverage rates fell 7.0 percentage points, from 54.6% in 2000 to 47.6% in 2004. While over half of the individuals in these families had coverage in 2000, fewer than half had coverage by 2004.

Declining coverage for workers

The percent of workers with employer-provided health insurance coverage fell from 2003 to 2004, continuing the uninterrupted decline that began in 2000. As shown in Table 2, 55.9% of workers who worked at least 20 hours per week and 26 weeks per year received employer-provided health insurance from their own employer, down from 56.4% the year before and down a total of 2.9 percentage points since 2000.

Table 2

The loss of coverage was greater for men than women, as the coverage rate for working men with employer-provided insurance fell 4.4 percentage points compared to 1.1 points for women workers. Working men, however, still had higher coverage rates than women in 2004 (58.7% vs. 52.5%).

Only 52.5% of workers with a high school education were covered in 2004, whereas 68.5% of college-educated workers had employer-provided health coverage. This disparity reflects the fact that higher-skilled workers are likely to have higher-quality jobs that offer health benefits. That said, even college graduates have not been insulated from the decline in employer-provided health insurance. Nonetheless, workers with only a high school education still fared worse than those with a college degree (a decline of 3.7 vs. 2.8 percentage points).

Workers earning lower hourly wages are significantly less likely to have employer-provided health coverage than those earning higher wages. In 2004, workers in the highest wage quintile were more than three times as likely to have employer-provided health insurance than workers in the lowest quintile (77.5% vs. 24.4%). The decline in employer-provided health insurance from 2000 to 2004 pervaded the entire wage scale, but the number of insured workers with wages in the second quintile (20-40%) fell the most (a drop of 4.9 percentage points). This vulnerable population is likely to have income too high to qualify for public insurance.

Both white collar and blue collar workers experienced declines in coverage, but blue collar workers are insured at lower rates (54.9% vs. 62.4%) and experienced a greater drop (4.1 vs. 2.6 percentage points). Even workers who worked full time and year round had significant declines in coverage between 2000 and 2004. In 2000, 66.2% of full-time, full-year workers had coverage. By 2004, coverage for this group had declined 2.3 percentage points to 63.9%.

Coverage rates in 2004 differ dramatically by the worker’s major industrial sector. As shown in Table 3, the agricultural, arts, and other services industries display the lowest rates—all below 40%of providing health insurance to their workers. On the other side, mining, manufacturing, and the information sectors all have significantly higher-than-average rates (all above 70%) of insurance coverage. The remaining six major industrial classifications fall within the mid-range. (Accurate comparisons cannot be traced back to 2000 as the sectoral categories changed in 2002.)

Table 3

Declining coverage for children

Employer-provided coverage fell further for children than for any other age group (see Table 4). While overall employer coverage fell from 63.6% to 59.8%, the decline in employer-provided insurance that covered children fell from 65.6% to 60.8%, a drop of 4.8 percentage points. Ranking children by their family’s income is particularly revealing of the unequal distribution of employer-provided health care (Figure A). Only 18.2% of children in the lowest income quintile were found to have employer-provided health insurance, compared with 87.4% of the children in the highest income quintile. In other words, children whose family incomes were in the top 20% were nearly five times more likely to have employer-provided health insurance than children in the lowest 20% of family income. This disparity has only been exacerbated over the past four years: the drop in coverage for those in the lowest income quintile was over four times that for children in the highest quintile. The group hurt the worst, however, was children in the second lowest quintile; their coverage rates declined by 8.5 percentage points, from 54.3% to 45.8%.

Table 4

Figure A

The last set of numbers in Table 4 assign each child the education level of their family head. Children with parents of lower education attainment fare much worse than those with college or advanced degrees. Only about 56.4% of children with high-school-educated parents have employer-provided health insurance as compared to 83.1% of children with college-educated parents. The declines in coverage from 2000 to 2004 were much worse for the former group as well.

In many ways, children fared the worst of any group in terms of employer-provided health coverage, but the strength of government programs aimed at children kept many from falling into the ranks of the uninsured. As shown in Figure B, growth in enrollment in both Medicaid and SCHIP increased the percent of children covered from 20.9% to 26.9%. Overall, 4.8 million more children were covered by these programs in 2004 than in 2000. This increase more than compensated for the 2.5 million decline of employer coverage among American youth, who experienced a slight decline in the number of uninsured during this period.

Figure B

Coverage of prime-age working Americans

Medicaid and SCHIP provided little help for Americans between the ages of 25 and 54. Those in the middle income quintile (wi
th annual income of about $45,000-$67,000) experienced declines in employer-provided coverage from 80.6% in 2000 to 75.8%, a drop of 4.8 percentage points (see Table 5). During the same period, people in this age/income grouping increased their Medicaid coverage from 1.3% to 2.0%, an increase of only 0.7 percentage points. Therefore, unlike the phenomenon that occurred for children, the decline in employer-provided health insurance left middle-income adults much more vulnerable (see Figure C). The share of these adults that became uninsured increased 3.5 percentage points, from 13.2% in 2000 to 16.7% in 2004.

Table 5

Figure C

Even those adults in the lowest income quintile did not offset their declines in employer-provided coverage with comparable increases in public insurance. The lowest quintile experienced a decline in employer coverage of 9.1 percentage points in the past four years, whereas the increase in Medicaid coverage was only 3.8 percentage points. While this public coverage did enable some to remain covered by some sort of health insurance, many more fell into the ranks of the uninsured.

Coverage by state

While the majority of states experienced significant declines in employer-provided coverage between the 1999-2000 and 2003-04 periods, the level and extent of coverage loss varied by state, as shown in Table 6. The states with the highest employer-provided coverage rates in the merged 2003-04 years were New Hampshire (72.7%), Minnesota (69.5%), and Delaware (68.4%). The lowest coverage rates were found in New Mexico (49.6%), Montana (50.7%), and Arkansas (51.1%). Maryland, Maine, Missouri, North Carolina, and Wisconsin all experienced losses in coverage rates in excess of 6.0 percentage points.

Table 6

Among the working population, the average loss in employer-provided coverage was 2.7 percentage points between the 1999-2000 and 2003-04 periods. As shown in Table 7, some states fared better than others. Workers in nine states experienced significant declines in coverage during this period. The sharpest rate decline was in Virginia, with a 6.7 percentage-point decline in coverage. The next largest declines were in Indiana, Massachusetts, and New Jersey, all with 5.6 percentage-point declines.

Table 7


Social insurance is intended to insulate people from negative shocks such as job loss, illness, or natural disaster. Public insurance is intended to provide a safety net to people who have limited access to private insurance markets. Clearly, there are many Americans who fall through the growing crack between employer-provided coverage and government health programs. A universal system, one that provides a minimum standard of care to everyone, would provide Americans with access to the type of health care appropriate for the most prosperous nation in the world. Taking insurance out of the job market and into the public sector has the potential to provide a stronger safety net, particularly during times of weak labor growth. This can lead more Americans to have steadier insurance access and increase their ability to secure regular medical care.

Unfortunately, the day when Americans might see universal health care in the United States seems a distant one. To make matters worse, Congress and President Bush are attempting to weaken both the government safety net and the employer system. A recent congressional budget resolution calls for substantial cuts to Medicaid, and President Bush’s tax reform panel is apparently proposing a cap on the employer income deduction for health insurance benefits, diminishing incentives for providing insurance in the workplace. At the same time, states are facing fiscal difficulties that may cause them to cut publicly provided health benefits even deeper.

From 2000 to 2004, this country saw a substantial rise in the number of uninsured. A continued decline in those with employer-provided health insurance along with a weakening of the health insurance safety net will undoubtedly cause more and more Americans to lose coverage and therefore access to adequate health care.

October 2005

The author thanks Jin Dai for his research assistance on this Briefing Paper.

* “Pay-or-play:” A measure that requires businesses to provide health insurance to its workers, or pay into a government fund that will do it for them. For further discussion, see the N.Y.C. Health Care Security Act web site:


1. Mead, Julia C. 2005. “Suffolk requires big stores to help with health care.” The New York Times, September 28.

2. Rosenbaum, David E. 2005. “Tax panel says popular breaks should be cut.” The New York Times, October 12, page A1.

3. Taylor, Andrew. 2005. “Budget battles to center on long-term cuts.” Washington Post, September 27.

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