The Rising Number of Uninsured Workers: An Approaching Crisis In Health Care Financing

Prepared for
The National Coalition on Health Care

By
Kenneth E. Thorpe
Tulane University Medical Center
Institute for Health Services Research

October 1997

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THE RISING NUMBER OF UNINSURED WORKERS

While the United States enjoys one of the greatest economic growth periods in our history, there were over 40 million Americans uninsured for health care in 1995. Of these 40 million, nearly 24 million were uninsured workers. Based on our analysis, the number of uninsured people will continue to grow significantly each year. Overall, more than one million new people become uninsured each year. Recently released government data support this finding as 41.7 million people were uninsured in 1996, an increase of 1.1 million over 1995 (1997 Current Population Survey). Even with the recent Federal effort to expand children’s health insurance, with present trends, the number of uninsured people will approach 47 million in only eight more years. At that point, one in five Americans under the age of 65 will be uninsured.

   The paradox is that the growing number of uninsured workers is occurring in an era of unprecedented growth in the U.S. economy coupled with low inflation and low unemployment, thus challenging the myth that economic growth will cure the problem of the uninsured. We believe that if the uninsured worker problem in the United States is not addressed soon, it will cause financial and other dislocations in the health care delivery system. The current situation, serious as it is, could just be the beginning of an even larger problem, because the ingredients for a rapid increase in the number of uninsured workers are in place. These include rising health care costs, structural changes in the economy, and a changing labor force.

Rising Health Care Costs: In large part due to high and rising health care costs, more and more working people do not have health insurance. Total health care spending is projected to increase 50 percent (from $1 trillion to $1.5 trillion) in the next five years. These high and rising health care costs have forced many employers — particularly in small businesses in the service sector — to drop health insurance. The major factors accounting for the continued growth in real health care costs are: the increased use of outpatient, ambulatory and nursing home services, changes in the nature and intensity of services, costs associated with chronic and severe diseases such as AIDS and cancer, and new and expensive medical technologies.

Structural Changes in the Economy: Employment in the service, retail trade and wholesale trade sectors is growing rapidly, which has had a large impact in increasing the number of uninsured people. While workers are being added to these firms, many of the firms in these sectors are not offering health insurance. Employer-sponsored health insurance is increasingly becoming a connection at risk in each of these sectors, especially in the small-business service-firm area, which is the fastest growing part of the economy.

The Changing Labor Force: Within the service sector, the number of contingent workers (contractual or part-time workers) is growing rapidly. Contingent workers account for 10 percent of the workforce and over 17 percent of all uninsured workers. A high share of contingent workers also account for nearly all the recent growth in employment in the wholesale and retail trade sector. Middle class workers with families, many working on a contingent basis are most affected by the decisions of employers not to offer health insurance or eliminate existing coverage. The uninsured person today is typically a young adult with children, between the ages of 19-39, whose household income is between $20,000 and 60,000 annually, who is a contingent worker, in a small business in the service sector.

   The realities of our changing economy and workforce require new and innovative approaches be developed to address the problem of the uninsured. And swift action will be needed to stem the tide, or we will be faced with a problem of such magnitude, that it will affect every aspect – cost, quality and access – of our health care delivery system.

KEY FINDINGS

   This Chart Book presents data that provides a framework for understanding the extent of the problem of the uninsured population in the United States.

General Trends in Health Insurance Coverage

• In 1995, the unemployment rate stood at 5.6 percent, nearly the same as 1990 – yet the percent of Americans without insurance climbed from 15.7 to 17.3 percent, an increase of 5 million uninsured people (1). It appears that economic growth, by itself, will not decrease the percent of uninsured Americans, and a recession could aggravate the problem significantly.
  
• Even with the anticipated sustained rise in employment, current trends indicate that the number of uninsured non-elderly Americans will approach 47 million by the year 2005. That means nearly 20 percent of the non-elderly population or 1 out of 5 of all Americans under age 65, will be without health insurance in eight years.
  
• Of the projected 47 million uninsured, the number of uninsured workers will be almost 30 million by the year 2005. Sixty percent of the entire uninsured population will be employed, and many of the remaining forty percent will be the dependents of those workers.

Trends in Employer-Sponsored Health Insurance

• The percent of Americans covered through employer-sponsored health insurance continues to decline. During 1990, an estimated 67.9 percent of the non-elderly were covered through employer-sponsored plans. By 1995, this number had declined to 64.6 percent.
  
• Although health insurance premiums slowed for large employers in the mid-1990’s, small employers continued to incur large premium increases. Premiums are expected to increase in 1998 and accelerate over the next few years as managed care plans pass along their increasing costs to employers (2). This is both to compensate for low premium increases over the last three years and because the easy, early savings in managed care have already been taken. As a result, we are likely to see more erosion in employer-sponsored health insurance plans and increases in the number of uninsured.
  
• The increased probability of going without health insurance is particularly acute for workers employed in small firms (under 25 employees). During 1995, 28.2 percent of these workers were uninsured, compared to 26.8 percent in 1993, the start of the economic recovery. These trends are likely to continue, given the higher premium increases – projected to be about 12 percent higher in 1997 than 1996 – facing these firms (3).
  
• Workers who are members of unions are substantially more likely to have health insurance than are non-union members. It is estimated that 5.9 percent of union members lacked health insurance during 1995, compared to 16.8 percent of non-union workers.

Structural Changes in the Labor Force

• The rise in service jobs and declining number of goods-producing jobs explain about one-third of the rise in the uninsured during the recent period of economic growth. The service sector is growing rapidly, and that is where the greatest increases in the uninsured worker population are occurring. There are only four industries where the percent of uninsured workers were lower in 1995 than 1990, and they account for a small percentage of the workforce (see Table 5).
  
• The high and rising number of contingent workers is linked to the high number of uninsured workers. In 1995, 10 percent of the workforce were contingent workers, and one-third of them were uninsured. In contrast, only 17.4 percent of traditionally employed workers were uninsured during 1995 (see Table 7). Recent growth in employment is traced to three industries: services, retail trade and construction where there is the highest concentration of contingent workers, and where health insurance is least likely to be offered.
  
• Today’s typical profile of the uninsured person is a young adult with children, between the ages of 19-39, whose household income is between $40,000 and $60,000 annually, who is a contingent worker, in a small business in the service sector (see Table 15).

Trends in Health Insurance Coverage, by Household Income

• Even as growth in private sector health insurance premiums slowed for large employers between 1993 and 1995, middle income families faced substantial increases in their share of health insurance premiums. Families earning $40,000 to $60,000 per year saw their health care expenditures increase between 5.6 percent and 8.5 percent during the same period. Even if health insurance is offered, many workers cannot afford to take advantage of health insurance benefits because they cannot afford to purchase family coverage, and may only choose insurance for themselves, leaving dependents without coverage.
  
• Middle income families with children, earning between $20,000 and $60,000, were more likely to lack health insurance in 1995 than in 1990.

Trends in Government Welfare Programs

• Attempts at the state, and more recently the federal, level to reform the welfare system through encouraging work has reduced the number of Americans receiving cash benefits through the Aid to Families with Dependent Children (AFDC) program (4).
  
• Since 1993, the percent of the U.S. population covered under Medicaid decreased from 10.4 percent to 9.8 percent in 1995.

The following charts examine in more detail trends in the number of uninsured and the factors accounting for the rising number of uninsured.

• The overall number of people who will be uninsured will approach 47 million (47.2 million) in the year 2005, nearly 20 percent of the non-elderly population, or 1 out of 5 of all Americans under 65.
  
• Assuming both changes in the distribution of workers by industry and changes in the probability of having insurance follow the trends of the 1990s, the percent of workers uninsured would rise to 20.2 percent in the year 2005.
  
• The number of uninsured workers will be almost 30 million in the year 2005, or 63 percent of the entire uninsured population of 47 million.

• The percent of Americans covered through employer-sponsored insurance (ESI) continues to decline (5). The percent of Americans under 65 who were covered by employers had declined from 67.9 percent in 1990 to 64.6 percent in 1995.
  
• The percent of Americans uninsured increased from 15.7 percent in 1990 to 17.3 percent by 1995. This represented a total of 40.3 Americans without health insurance in 1995.
  
• The number of people receiving cash benefits through the Aid to Families with Dependent Children (AFDC) program has declined steadily since 1993, and these people are no longer eligible to receive Medicaid health benefits. Starting in 1993, the percent of the population covered by Medicaid decreased from 10.4 percent to 9.8 percent in 1995. Many former welfare recipients who had insurance are employed in jobs that do not offer health insurance.

• Between 1993 and 1995, over 5.5 million jobs were created. However, during the same period, an additional 1.1 million workers became uninsured. Reducing the percent of Americans without health insurance does not appear to be a problem that economic growth can solve.
  
• Another 4 million nonworkers became uninsured during this period, many who were dependents of workers who became unemployed.
  
• Though one would expect to observe an increase in those uninsured during an economic downturn (1990 through 1992), the persistent rise in the number of uninsured even as the economy has rebounded is troubling. Although the unemployment rate during 1995 was similar to the 1990 rate, the percent of workers without health insurance was 1.6 percentage points higher. Approximately 5 million people were added to the uninsured ranks between 1990 and 1995.

• While national health care spending only increased 5.3 percent per year between 1993 and 1995, spending rose 6.4 percent in 1996. This upturn in spending may mean a new cycle of larger increases in the escalation in health care costs. Health care spending exceeded $1 trillion in 1996 and, based on projections, will increase to nearly $1.5 trillion by the year 2002 (6). These increases will ultimately be reflected in the costs of both government health care programs and private sector health insurance plans.
  
• As managed care plans try to make up for recent low premium increases, employers will experience premium increases ranging from 5 percent to 15 percent in late 1997 and 1998 (7). Although all employers will experience these increases, small employers will see the highest increases, which further threatens the employer-sponsored health insurance connection (8).

• The rise in service jobs and declining share of manufacturing jobs explains about one-third of the increase in the number of uninsured during the recent period of economic growth.
  
• There are a significant number uninsured segments in the service industry (26 percent); in the retail trade sector (25 percent); and among the self-employed (25 percent). The largest rates of increase in the number of uninsured individuals are occurring in these sectors, and it is in these segments where most of the new jobs are being created.

• Workers in smaller firms (under 25 workers) are more likely to be uninsured than workers in larger firms.
  
• The percent of workers in small firms (under 25 employees) without health insurance has increased over time, rising from 25.9 percent in 1990 to 28.2 percent by 1995. Workers without health insurance in these firms increased by 1.4 percentage points between 1992 and 1995, despite the coincident period of economic growth.
  
• By 1995, 17.4 percent of all workers were without health insurance, which was the same as the percent of non-workers without coverage.

• One major factor contributing to the rising number of uninsured over the last five years is the high and rising share of the contingent labor force. These non-traditional arrangements include independent contractors, individuals working through a temporary agency, a contract company or working on-call (9).
  
• As of 1995, the size of the contingent labor force was estimated at nearly 10 percent of the labor force, some 12.2 million workers, who comprise 17 percent of all uninsured workers.
  
• The large number of contingent and uninsured workers are found in the largest growth area, the service sector. Within the service sector, contingent workers account for 12 percent of the workforce and nearly 40 percent of all uninsured contingent workers.

• During the period of economic growth from 1992 through 1995, industries (service, wholesale and retail trade, and construction) with a high share of contingent workers account for nearly all the recent growth in employment.
  
• Workers in these industries are more likely to lack health insurance compared to workers in other industries (particularly when compared to goods-producing industries such as manufacturing or mining).

• Projections show that industries with relatively few uninsured workers are expected to contract, and those with higher rates of uninsured workers are expected to rise.
  
• Nearly all the projected rise in employment over the next ten years is expected to occur within the service industry. In contrast, industries with relatively low rates of uninsured workers – such as mining and manufacturing – are expected to have fewer workers by the year 2005.

• Another factor contributing to the declining share of workers with health insurance is the declining number of workers covered under union contracts.
  
• Workers who are members of unions are substantially more likely to have health insurance than non-union workers. During 1995, 5.9 percent of union members lacked health insurance compared to 16.8 percent of non-union workers.
  
• Many of the economic sectors experiencing the largest employment growth (such as retail, personal and business services) have few union members, and high proportions of their workforce are without health insurance. Among non-union workers in the personal service businesses, over 30 percent were uninsured.

• Nearly half of the uninsured population live in households earning less than 133 percent of the federal poverty line (this means for a single person earning less than $9,800 a year in income or a family of four earning less $20,000.)
  
• The largest percentage increase occurred among families with incomes between 351 and 400 percent of poverty (approximately $50,000 to $60,000) rising from 6.4 percent in 1990 to 9.5 percent by 1995 (10). The second largest percent increase between 1990 and 1995 occurred among families earning between $10,000 to $15,000 in income (0 to 99 percent of poverty).

• Middle income families with children, those earning between $20,000 and $60,000, were more likely to lack health insurance in 1995 compared to 1990.
  
• Specifically, the percentage of single adults with children who are uninsured has increased substantially (20 percent) between 1990 and 1995. Approximately 7 million uninsured people reside in these households.

• Even as growth in private health insurance premiums increased about 1.0 percent per year between 1993-1995 for employers, families earning $40,000 to $60,000 per year had a very different experience. Their expenditures increased between 5.6 percent and 8.5 percent during the same period because employers shifted additional costs of health insurance premiums to employers (11).
  
• Many workers in this income category cannot afford health insurance for themselves or dependents. The percentage of workers who were without health insurance increased from 3.5 percent in 1990 to 5.5 percent in 1995 (12).
  
• Employer health insurance premiums are expected to increase over the next five years, based on reports that managed care plans are increasing their prices to improve profitability (13). If employers pass along these increased costs to employees, it will be even more difficult to pay for premiums. This may not even be an option for employees, if employers decide they cannot afford their share of increased premiums and drop their health insurance.

• Across all categories, the probability of lacking health insurance has increased for men and women of all age groups (men aged 50 through 59 are the only exception).
  
• The largest increase in the percent of people uninsured occurred among adults aged 30 through 39. The proportion of women aged 30 through 39 who were uninsured increased 3.5 percentage points, rising from 12.6 percent in 1990 to 16.1 percent by 1995. The proportion of uninsured men in the same age cohort increased sharply, rising from 18.6 percent in 1990 to 21.7 percent by 1995.
  
• Adult men aged 19 through 49 are more likely to lack health insurance than women in this age cohort. After age 50, however, women are more likely to lack health insurance coverage than men.
  
• The pattern of health insurance coverage among children and young adults is changing. Approximately 10 million children were uninsured in 1995. However, the probability of being uninsured increases sharply among young adults between ages 19 and 29. For instance, 31.7 percent of men aged 19 to 29 were uninsured, while 23.5 percent of women in the same age cohort were uninsured. Both of these proportions increased by 3 percentage points between 1990 and 1995.

ENDNOTES

1. These tabulations are from the March 1996 Current Population Survey. The survey asks respondents several questions about whether they had one of the several sources if health insurance at any time during the previous calendar year. If the respondent responded “no,” he or she was assumed to be uninsured. By the nature of the question, the resulting counts should measure those uninsured throughout the year. Other analysts, however, believe the resulting counts are closer to a point-in-time estimate.
   
2. “Health Care is Poised for an Increase in Rates.” Business Insurance. July 7, 1997.
   
3. See note 2.
   
4. Tabulations from the Survey of Income and Program Participation.
   
5. Each individual is uniquely classified as having a single source of health insurance. Many individuals report multiple sources of coverage at times during the year (i.e., Medicaid and private coverage). Respondents reporting employer-sponsored insurance (ESI) as well as another source of insurance are classified as having ESI.
   
6. Kenneth E. Thorpe. Changes in the Growth in Health Care Spending: Implications for Consumers. Washington, DC, The National Coalition on Health Care, April, 1997:6.
   
7. See Note 2.
   
8. See Note 6.
   
9. Steven Hipple and Jay Stewert, “Earnings and Benefits of Workers in Alternative Work Arrangements.” Monthly Labor Review, October, 1996:46-54.
   
10. Health insurance units were used to group households. This unit represents a grouping of people who would be included in a traditional private health insurance plan (i.e., husband, wife, child under age 19 or through age 23 if a full time student). The poverty guidelines are applied to these units. This differs from the approach used by Census which groups primary households together and applies the poverty standards to these households. The insurance unit approach is more akin to the primary subfamily concept within the CPS. This approach generates many more units, and places a higher percent of them in poverty. A simple example would be a working daughter age 25 living at home with an infant. The daughter and infant are counted as a separate unit, whereas they would be included in the Census definition of primary household.
    
11. See Note 6.
    
12. “Trends in Health Insurance Coverage.” EBRI Issue Brief 185, Washington, DC, May, 1997.
    
13. See Note 2.