Health Insurance Coverage and Reemployment Outcomes among Older Displaced Workers
Lin, Emily Y., Contemporary Economic Policy
Employment-based health insurance constitutes the dominant source of health coverage for the nonelderly population in this country. In 2003 the employment-based system covered 71% of nonelderly adult workers. (1) Taking children and nonworkers into account, nearly two-thirds of the nonelderly population participated in a health insurance plan sponsored either by their own or a family member's employer. This almost exclusive provision of health insurance through the workplace has important implications for studying the problems of the uninsured, a population totaling 45 million individuals in 2003. Among the implications is that job separation creates a trigger event for many to lose health insurance coverage.
To better understand the relationship between employment and health coverage, this article explores the health coverage outcomes among workers who experience an involuntary job loss after age 50 but before Medicare entitlement. Older workers may find employment-based health insurance particularly valuable because they generally benefit from the system's pooling mechanism and group health insurance regulations. With the exception of a few states, private health insurance purchased in the individual market requires underwriting, allows premium rates to vary with health risks, and may exclude coverage for preexisting medical conditions. Anecdotal evidence is available about the difficulty in obtaining affordable health insurance outside of employment among less healthy individuals. (2) In contrast to the predominance of the employment-based system, only 6.5% of the nonelderly population purchased individual coverage in 2003.
Options to continue employment-based health insurance do exist after separation from employment, either through the spouse's employer plan or coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Under the act, job separation, voluntary or not, is one of the qualifying events that entitles workers to the right to purchase the former employer's health insurance plan for up to 18 months. COBRA mandates apply to employers with 20 or more employees. Workers who participate in the employer's plan before separating from the firm are eligible for this continuation coverage. Enrollees generally pay the full coverage cost plus an administrative fee. Considering that an employer plan on average cost about $9,000 per year for family coverage and $3,400 for single coverage in 2003 (Kaiser Family Foundation 2003), the coverage cost could represent a substantial portion of displaced workers' income. Some workers, however, may prefer COBRA coverage because it allows for continuation of group insurance and imposes no new applications of preexisting condition exclusions.
Because the health and financial consequences of losing health insurance could be more significant for older workers than others, it is of interest to study job displacement in the context of health coverage for this population. A number of issues are analyzed in this article. First, it is essential to understand the extent to which an involuntary job loss lowers the incidence of health coverage among older workers. Despite the potential interruption in health coverage through the worker's own employer, other sources of health insurance may be available to provide fall-back alternatives for older displaced workers. Such alternatives include coverage through the spouse's employer, continuation coverage by the former employer's plan, and individually purchased private insurance. Also, some individuals may be eligible for public insurance. These sources of coverage will mitigate the circumstances in which workers lose health insurance after a job displacement.
Next, the coverage patterns are expected to change as the length of time since the displacement increases. Changes could occur when the worker obtains group insurance through the new employer or when the COBRA right expires after 18 months of coverage. …