Impacts of Rising Health Care Costs on Families with Employment-Based Private Insurance: A National Analysis with State Fixed Effects

Despite a temporary reprieve in the 1990s, growth in health care costs accelerated again in the early 2000s (Strunk, Ginsburg et al. 2005). Although many studies have examined trends in the growth of health care costs (Glied 2009), reasons for the growth (Bodenheimer 2006), and the associations among cost growth, health care access (Lesser and Ginsburg 2003; Collins, Kriss et al. ), and quality (Bodenheimer and Fernandez 2003), the literature offers weak evidence on the direct impact of rising health care costs on private insurance availability and enrollment and the resulting consequences for the affordability of health care. Two recent studies have shown that out-of-pocket (OOP) medical expenditures are placing a higher strain on family incomes than they have in the past (Waters, Anderson et al. 2002; Banthin and Bernard 2004). One new CMS report confirmed the continuous growth of OOP expenditures per capita in the United States, which increased from $547 per capita in 1990 to $974 in 2009, an increase of 78 percent from 1990 (CMS 2011). Another recent article describes trends in underinsurance and the affordability of employer coverage (Gabel, McDevitt et al. 2005). Although the authors of these papers mentioned high and rapidly rising health costs, they did not examine the direct impact of rising costs on enrollment in employment-based private insurance (EBPI) or the financial protection afforded to those with EBPI, nor whether these relationships differed substantively for families with different incomes. Understanding the consequences of rising health care costs on EBPI is particularly important because the majority of Americans obtain health insurance coverage through employers (Enthoven and Fuchs 2008), and EBPI continues to be at the core of reform efforts that aim to expand insurance and improve access. For example, effective by January 1, 2014, the landmark Patient Protection and Affordable Care Act will impose a $2,000 per employee tax penalty on employers with over 50 employees who do not offer health insurance to their full-time workers (McNamara 2002). The Act will also affect small employers through health care tax credits and insurance exchanges. According to one national survey, one-third of small employers who have fewer than 50 employees and currently do not offer health insurance to their employees said they would be more likely to because of the tax credits and the insurance exchange (Small Business Majority 2010). The EBPI system, however, could be threatened by rapid growth in health care costs. A number of national experts have recently raised concerns about the erosion of EBPI (Enthoven and Fuchs 2008; Robinson 1995), though none of them conducted empirical studies. Thus, the extent to which high and rising health care costs lead to reductions in EBPI availability and enrollment or to increases in OOP expenditures remains an unsettled question. To identify the strongest evidence about the relationship between rising health care costs and the erosion of EBPI, this paper focuses on families in which every member has EBPI for the entire year (EBPI-EYEM). These are the families in the private marketplace that are thought to be the most protected from financial loss due to medical calamity. We examined three impacts of the rising costs on EBPI, including families' likelihood of receiving an EBPI offer, families' enrollment in EBPI-EYEM, and OOP expenditures among those families who retain their EBPI-EYEM coverage. Our findings of reduced offer and enrollment in EBPI-EYEM and increased financial risk among the families with EBPI-EYEM reveal the extent to which the erosion of EBPI is far-reaching.