Date: 18 Feb 2011

Premium growth and its effect on employer-sponsored insurance

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We use variation in premium inflation and general inflation across geographic areas to identify the effects of downward nominal wage rigidity on employers’ health insurance decisions. Using employer level data from the 2000 to 2005 Medical Expenditure Panel Survey-Insurance Component, we examine the effect of premium growth on the likelihood that an employer offers insurance, eligibility rates among employees, continuous measures of employee premium contributions for both single and family coverage, and deductibles. We find that small, low-wage employers are less likely to offer health insurance in response to increased premium inflation, and if they do offer coverage they increase employee contributions and deductible levels. In contrast, larger, low-wage employers maintain their offers of coverage, but reduce eligibility for such coverage. They also increase employee contributions for single and family coverage, but not deductibles. Among high-wage employers, all but the largest increase deductibles in response to cost pressures.

The research in this paper was conducted while Jessica Vistnes was also a Census Bureau research associate at the Center for Economic Studies. Research results and conclusions expressed are those of the authors and do not indicate concurrence by the Bureau of the Census, the Department of Health and Human Services or the Agency for Healthcare Research and Quality. This paper has been screened to insure that no confidential information is revealed.