Changes in Family Health Insurance Coverage for Small and Large 

Firm Workers and Dependents: Evidence from 1995 to 2005

by Eric E. Seiber, and Curtis S. Florence, 2007 [64] pages. Columbus, OH 43210

Under contract number SBAHQ-06-M-0513

The opinions and recommendations of the authors of this study do not necessarily reflect official policies of the U.S. Small Business 

Administration or other agencies of the U.S. government.

Introduction

Access to and affordability of health insurance 

offered by business owners to employees continue 

to be of great concern. According to the National 

Federation of Independent Business, the cost of 

employer-sponsored health insurance is the most 

pressing problem affecting the provision of health 

insurance for small business owners. The objective 

of this study is to determine whether the decline 

in family health insurance coverage at large firms 

has increased financial pressure on plans sponsored by small firms. The study addresses family 

health insurance coverage from the worker’s perspective.

Overall Findings

This study finds that family health insurance coverage for workers in both small and large firms is 

decreasing, and that firm size plays a role in the 

type of dependent coverage children have. Access 

to coverage through a large firm as a dependent 

remains very important to small firm employees.

Highlights

• Small firm workers married to large firm 

workers are more likely to be covered as dependents at large firms than if their spouses work at 

small firms. Specifically, in 2005 an estimated 47 

percent of small firm workers with a spouse working in a large firm were covered as dependents, 

compared with 23.5 percent of small firm workers 

with a spouse working in a small firm. 

• The study also finds that few large firm 

employees are shifting their coverage from their 

large firm to dependent coverage under their small 

firm spouse’s plan. Large firm workers married 

to small firm workers experienced a decline in 

coverage from work of almost 3 percentage points 

compared with an increase of about 0.8 percentage point in coverage through their small firm 

spouses.

• Small firms do face more financial pressure 

from the decline in large firm dependent coverage of children; however, the effect is quite small, 

with an increase of less than one percentage point 

in the share of children covered as dependents by 

small businesses when their parents work at different-sized firms.

• The findings show that children are more likely to have dependent coverage if they have a parent working in a large firm. In 2005, 63.7 percent 

of children with both parents working at a small 

firm had dependent coverage, compared with 78 

percent if one parent worked at a large firm and 

the other at a small one, and 81 percent if both 

parents worked at a large firm.

• Nonemployer coverage of children is especially important for families where both spouses 

work in small businesses. This "other" coverage 

has reduced the share of small firm worker parents with uninsured children from 16.4 percent to 

11.0 percent.

• Over the study period 1995 to 2005, dependent 

coverage for married workers increased slightly 

for large firm workers with a spouse working in 

a small firm. Also, there has been an increase in 

dependent coverage of small firm employees by 

their large firm spouses, which should decrease the 

financial pressure on small firms.

Scope and Methodology

The researchers use data from the Annual March 

Demographic Survey of the Current Population 

March 2008 No. 321
Survey (CPS) for 1996, 2001, and 2006. The 

March CPS is collected by the U.S. Census Bureau 

on behalf of the Bureau of Labor Statistics. From 

1996 to 2001, the survey sampled approximately 

60,000 households annually. The March CPS surveys are an extensive collection of information on 

the work experience, income, and demographics 

of the U.S. noninstitutionalized population, and 

are also primary sources of information on health 

insurance coverage. The CPS does not contain any 

information on health insurance costs. 

To control for differences in health insurance 

costs across different locations and across time, 

the authors use premium data from the Federal 

Employees Health Benefits Program (FEHBP). 

Therefore, FEHBP premiums can serve as a proxy 

for local health insurance costs. The FEHBP data 

were merged with the CPS data by calculating 

the mean FEHBP managed-care plan premium 

for each metropolitan statistical area (MSA) in 

the United States, and then matching this mean 

premium with each respondent’s MSA code in 

the CPS data. Respondents who did not live in an 

MSA were assigned the mean premium for all of 

the MSAs in their state. If their state did not have 

an FEHBP plan, they were assigned the premium 

for the Blue Cross Blue Shield FEHBP plan for 

that year. 

This study uses a series of four multinomial 

logit models to test whether spouses working 

for large firms and children previously covered 

through large firms have shifted to dependent 

coverage in group plans sponsored by small businesses. For a shift in coverage from large firm to 

small firm employers to occur, a family must have 

a mix (a spouse working at a large and small firm) 

of workers who can potentially cover dependents 

through their job. For this reason, employer-based 

health insurance for two-earner married couples 

and their children is analyzed. One major limitation of this study is that the data did not make 

it possible to determine if workers or employers 

were dropping health insurance coverage.

This report was peer-reviewed consistent with 

Advocacy’s data quality guidelines. More information on this process can be obtained by contacting the director of economic research by email at 

advocacy@sba.gov or by phone at (202) 205-6533.

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