Health insurance subsidies most efficient way to expand coverage

A new Urban Institute report titled "Workers Without Health Insurance: Who Are They and How Can Policy Reach Them?" suggests that the most efficient way to increase health insurance coverage is to target subsidies toward low-income workers. The report also offers a detailed picture of 16 million uninsured working people and compares the relative merits of two key vehicles for expanding coverage: tax credits and public programs.

"Firms offer health insurance if their workers demand it, but the evidence makes clear that many low-income workers cannot afford to demand health insurance today," concluded Len Nichols, a health policy expert. "Increasing their purchasing power through targeted subsidies is the surest way to expand coverage. If such subsidies are structured properly, the share of firms that offer health insurance and the share of workers who enroll would both increase."

The working uninsured

Among the workers more likely to lack health insurance are workers in small firms, retail workers, construction workers, service workers, low-wage workers, part-time workers, short-tenure workers and workers who live in low-income households. Over half (59%) of uninsured workers' employers do not sponsor health insurance; 21% are not eligible for their employers' plans; and 20% decline the coverage they are offered at work.

The report also found that:

• Workers in larger firms are more likely to be offered, to be eligible for and to enroll in employer-sponsored health insurance, regardless of industry.

• Across industries, rates of employer sponsorship of insurance vary more than take-up rates, but the rates are correlated. The findings suggest that workers' ability and willingness to pay for health insurance coverage are key to a firm's decision to sponsor a health insurance program.

Policy implications

According to the report, policies designed to expand health insurance coverage tend to focus on workers in low-income households, low-wage workers and small firms. Many low-wage workers, the authors point out, are secondary earners in higher-income households and are already insured. "Targeting subsidy dollars to low-income workers would extend eligibility to a large share of uninsured workers, and would be less likely than targeting low-wage workers to subsidize workers who already have coverage," said health economist Bowen Garrett.

The authors suggested that employer tax credits are easier to administer than individual tax credits, but are not as likely to expand health insurance coverage. At the same time, individual tax credits would need to be refundable to help low-income workers. If the individual tax credit approach were adopted, subsidies would be more effective if they were applicable to either employer-sponsored or non-group insurance.

The authors found that public program expansions would work better than individual tax credits to reduce the rate of uninsurance for low-income workers, unless a tax credit subsidy were nearly equal to the price of an insurance policy. But public program expansions would require a more elaborate eligibility determination system, either through the tax system or a state welfare agency. PR