health insurance coverage , 1979 - 1995

The decline in health insurance coverage among workers from 1979 to 1995 can be accounted for almost entirely by the fact that per capita health care spending rose much more rapidly than personal income during this time period. We simulate health insurance coverage levels for 1996–2005 under alternative assumptions concerning the rate of growth of spending. We conclude that reduction in spending growth creates measurable increases in health insurance coverage for low-income workers and that the rapid increase in health care spending over the past fifteen years has created a large pool of low-income workers for whom health insurance is unaffordable. From 1979 to 1995 the number and percentage of workers without health insurance increased substantially, but the cause of this increase is still not well understood. One potential explanation is that changes in the structure of the economy, in immigration patterns, and in educational achievement resulted in an increased number of low-wage workers in 1995 compared to 1979. This explanation is clearly not supported by the facts. Among all workers, real income per capita in 1995 was $27,936, about 3 percent higher than in 1979. Further, although income inequality has risen, growth in real income between 1979 and 1995 was virtually flat for the second through the eighth income deciles, with the bottom decile and the top two deciles posting slight gains in real income during 1979–1995. Health insurance coverage has declined substantially while real income has been close to flat; we cannot explain a variable with a constant. A second potential explanation is that employment has shifted toward jobs that are part time, in small firms, self-employed, nonunionized, or in service industries, all of which tend not to have insurance benefits. However, a growing body of research suggests that changes in job characteristics cannot account for much of the decline in coverage. The basic argument is a simple one. First, job characteristics, other than income, have relatively small effects on the probability of coverage. Second, the magnitude of changes in the proportion of workers in types of jobs less likely to offer coverage has been relatively small and therefore cannot account for much of the aggregate decline in workers’ health insurance coverage. We add to the evidence for this argument in the results we present below. A third potential explanation is that health insurance coverage has declined because health care prices have increased more rapidly than income. This explanation is intuitively plausible: Even the casual observer is aware that health care prices have increased more rapidly than income for most of the past sixteen years. However, no direct evidence has been assembled in support of this hypothesis. This paper documents the extent of the decline in the percentage of workers with health insurance between 1979 and 1995, estimates INSURANCE 31