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Small Business is not THE problem _and not the solution_

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Small Business is not THE problem _and not the solution_ Powered By Docstoc
					   The response of small businesses to
   variation in the price of insurance:
    evidence from a randomized trial
                  Richard Kronick
                    Louis Olsen
                    Todd Gilmer
Department of Family and Preventive Medicine, UCSD
 Supported by a grant from the California HealthCare
                     Foundation
                 Overview
•   Policy Background
•   Research Questions
•   Theory
•   Data and Methods
•   Results
•   Conclusions
         Policy Background
• 80% of the uninsured are workers or the
  dependents of workers
• Many uninsured workers work at a business
  that does not offer insurance
• Small businesses are much less likely to
  offer insurance than large businesses
• Small business owners are a politically
  attractive constituency
                Policy Background (cont.)
• State governments have made efforts to increase
  the affordability and availability of coverage for
  small businesses
   – Small group market reform
   – Purchasing cooperatives
   – Exemption from mandated benefits
      • Association health plans and MEWAs
   – Direct subsidies for small businesses
      • MA, NY, MI
      • Senator Debbie Stebanow (D-MI) has proposed federal
        subsidies for small businesses that don’t provide insurance
      • Senator Kerry has proposed a refundable tax credit of up to
        50% for small businesses (< 25 employees) that offer coverage
          Research Questions
• If small business owners who do not currently
  offer insurance are offered coverage at a
  substantial discount, what percentage will
  purchase coverage?
• How does the purchase rate vary as the price of
  coverage is varied?
• What fraction of the uninsured are full-time
  workers at a small business that does not offer
  coverage?
  Employer’s Decisions to Offer
           Insurance
• Firms act as agents for their employees
• Firms offer insurance if the amount that
  employees are willing to pay for insurance with a
  given benefits package is greater than the price at
  which the employer can make insurance available
• Assumes that wages will adjust to compensate for
  benefits costs
   – Feldman, et. al,, 1997, Journal of Human Resources
  Factors hypothesized to affect employer’s
   response to offer of subsidized coverage
   among employers not currently offering
• Price of coverage for employer and price for
  employee
• Owner’s insurance status
• Proportion of employees who are uninsured
• Employee characteristics expected to affect
  demand for coverage (income, marital status,
  race/ethnicity, health status)
• Business characteristics (difficulty in hiring and
  retaining workers; profitability; growth trajectory;
  number of employees)
  Previous Work on the Effects of Price
  Reductions on Small Firms’ Behavior
• RWJ Health Care for the Uninsured Projects,
  1987-1989
   – Projects varied, but many provided 25%-50% premium
     subsidy
   – Helms, et. al. (1992) report low levels of market
     penetration
• New York State Health Insurance Pilot Program,
  1988
   – 50% state subsidy
   – Thorpe, et. al (1992) report low levels of penetration
 Observational research on price
           elasticity
• A variety of work attempts to estimate price
  elasticity of demand: suggests elasticities of
  between -0.1 and -0.6
• Approximately 70% of small businesses offer
  insurance
   – An elasticity of -0.1 implies that a 50% reduction in
     price will increase the percent offering to 73.5%
   – An elasticity of -0.6 implies that a 50% reduction in
     price will increase the percent offering to 91%
           Data and Methods
• Conducted a randomized trial in San Diego from
  June-December, 2001
• Obtained a list of small businesses (3-50
  employees) from Dun&Bradstreet
• Randomly assigned employers to experimental
  treatments; treatments varied by how much
  employers and employees were required to pay for
  coverage
• Subsidies provided by the California HealthCare
  Foundation
   Description of the experiment
• Employers were offered a comprehensive HMO
  benefits package from Sharp Health Plan
• Eligibility criteria:
   – Between 2 and 50 FTEs
   – Not currently offering insurance
   – Have at least 2 uninsured workers with family income
     below 300% of FPL
   – Dependent children were eligible to enroll only if they
     were not eligible for Medi-Cal or Healthy Families
• Prices and subsidies were guaranteed for two
  years
        Table 1: Employer Monthly Premium by Employer Experimental Treatment
                                                   Employer Experimental Treatment
Tier Level: Policy Type                 1            2           3            4       5
  Tier One: Employee Only                   $14         $21         $28         $35       $42
  Tier Two: Employee & Spouse               $22         $33         $44         $56       $67
  Tier Three: Employee & Child(ren)         $26         $40         $53         $66       $79
  Tier Four: Employee & Family              $32         $48         $65         $81       $97
Source: Sharp Health Plan - FOCUS Employer Fact Sheet.
        Table 2: Employee Monthly Premium by Employee Experimental Treatment
              Federal Poverty Level                  Employee Experimental Treatment
Tier Level        (year 2000)             1            2           3            4            5
                    < 150%                     $6          $9         $12          $15            $18
                   150-175%                   $11         $16         $22          $27            $33
 Tier One:         175-200%                   $16         $25         $33          $41            $49
Employee
                   200-225%                   $23         $35         $46          $56            $56
Only Policy
                   225-250%                   $29         $44         $56          $56            $56
                   250-300%                   $43         $56         $56          $56            $56
                    < 150%                     $9         $13         $17          $21            $26
 Tier Two:         150-175%                   $15         $22         $29          $36            $44
Employee &         175-200%                   $22         $33         $44          $55            $66
  Spouse           200-225%                   $31         $46         $62          $77            $93
   Policy          225-250%                   $39         $58         $78          $97           $117
                   250-300%                   $58         $87        $117         $146           $148


Note: Shaded cells represent values that are capped to insure that sum of maximum employer and employee
contributions do not exceed total premium value. Premiums for Tiers Three and Four are not shown.
Source: Sharp Health Plan - FOCUS Employee Fact Sheet.
   Table 3: Average Employee Premium for an Employee-Only Policy, by Employee Experimental
                                          Treatment
                                                   Employee Experimental Treatment
                                         1           2           3            4       5         Total
 Average Employee Premium for an
 Employee-Only Policy                        $16        $24         $32         $36       $37       $30
 Standard Deviation                           $9        $11          $8         $12       $12       $13
 25th Percentile of Firms                     $8        $16         $27         $30       $28       $20
 75th Percentile of Firms                    $26        $33         $34         $45       $45       $40
Note: Unweighted N=134 firms.
Source: UCSD Survey of Small Employers in San Diego, 2001.
       Implementation of the
            experiment
• Mailed introductory letters to sampled
  employers
• Followed up with phone calls to explain the
  offering, identify whether the business was
  eligible, and offered to schedule on-site
  visits with eligible employers
            Data Collection
• At all businesses contacted, gathered
  information from owner (or knowledgeable
  respondent) to determine whether the
  business was eligible:
  – Did the firm offer insurance?
  – How many FTEs at the firm?
  – Were there at least two uninsured workers?
          Second round contacts
• Between 1 to 5 months after the first contact, attempted to
  re-contact refusals and partial refusals
• Successfully gathered information on approximately 1/3 of
  the initial refusals and partial refusals
• Using information on outcomes from the second round of
  contacts on converted refusals and converted partial
  refusals, we assigned outcomes to remaining refusals and
  partial refusals
   – assignment process was done separately by D&B
     reported firm size
                           Figure 1: Estimates of Business Eligibility for FOCUS


                                                                                  15%                             6%
                                             53%
     5,720                                                                    Do Not Offer                    Eligible for
                                          In Scope
 Letters Mailed                                                                Insurance                       FOCUS
                                          N = 3,037
                                                                                N = 855                        N = 345



                   Out of Scope /                                                                      < 2 Income
                                                              Offers                   < 2 Uninsured     Eligible
                    Unable to
                                                            Insurance                     Workers       Workers
                     Contact
                                                            N = 2,182                     N = 451        N = 59
                    N = 2,683


Source: UCSD Survey of Small Employers in San Diego, 2001.
Note: Businesses are 'in scope' if they employ betw een 2 and 50 full-time w orkers.
Results
 Table 4: Percent of Businesses Purchasing FOCUS, by Employer Premium for an
                             Employee-Only Policy
                           Employer Premium for an Employee-Only Policy
Purchased FOCUS       $14        $21          $28         $35           $42       Total
 Yes                      33%        18%          22%         14%           21%       21%
 No                       67%        82%          78%         86%           79%       79%
            Total       100%        100%         100%       100%          100%       100%
Pearson r = -.118; p = 0.174.
Note: Unweighted N=199 firms; weighted N=345.
Source: UCSD Survey of Small Employers in San Diego, 2001.
 Percent of Businesses Purchasing FOCUS, by Employee Experimental Treatment
                                  Employee Experimental Treatment
Purchased FOCUS        1            2           3            4        5          Total
 Yes                        21%        25%         22%          13%        22%       21%
 No                         79%        75%         78%          87%        78%       79%
            Total          100%       100%        100%         100%       100%      100%

Pearson r = .024; p = 0.653
Note: Unweighted N=134; Weighted N=345
Source: UCSD Survey of Small Employers in San Diego, 2001.
     Table 5: Percent of Businesses Purchasing FOCUS, by Average Employee
                       Premium for an Employee-Only Policy
                       Average Employee Premium for an Employee-Only Policy
Purchased FOCUS      $6-$17     $17-$26    $26-$33      $33-$43     $43-$58     Total
 Yes                      34%        28%         17%          9%          16%       21%
 No                       66%        73%         83%         91%          84%       79%
            Total        100%       100%       100%         100%         100%      100%
Pearson r = -.175; p = 0.043.
Note: Unweighted N=134; Weighted N=345.
Source: UCSD Survey of Small Employers in San Diego, 2001.
                  Percent Purchasing FOCUS by Owner Eligibility Status
100%


 90%


 80%


 70%


 60%


 50%


 40%


 30%


 20%


 10%


  0%
                       Ow ner is eligible for FOCUS                                       Ow ner is not eligible f or FOCUS
                                    n=58                                                               n=288
                                        Purchased FOCUS                        Did Not Purchase FOCUS

       Note: Unw eighted Ns: Eligible ow ners=37; ineligible=97. Table only includes businesses that w ere eligible
       to purchase FOCUS.
  Table 6: Weighted Logistic Regression Results Predicting the Probability of
                             Purchasing FOCUS

                                                                 Parameter Estimate
                                                                  (1)          (2)
Variable Name

 Employer Premium Payment for an Employee-Only Policy           -0.024          -
                                                                (0.022)         -

 Average Employee Premium Payment for an Employee-Only Policy    -0.029         -
                                                                (0.016)*        -

 Total Premium Payment for an Employee-Only Policy                 -          -0.027
                                                                   -        (0.010)***

 Owner is FOCUS-Eligible                                          1.88        1.88
                                                                (0.47)***   (0.47)***

 Intercept                                                        -0.21       -0.18
                                                                 (0.68)      (0.64)

Unweighted N                                                      134         134
Pseudo R2                                                         0.13        0.13


* P < .1; ** P < .05; *** P < .01.
Note: Robust standard error in parentheses. Weighted N = 345.
Source: UCSD Survey of Small Employers in San Diego, 2001.
                                Figure 2: Predicted Probability of Purchasing Insurance, by Premium Cost and Owner
                                                                   Insurance Status


                          0.8


                          0.7


                          0.6
Probability of Purchase




                          0.5



                          0.4


                          0.3



                          0.2


                          0.1



                            0
                                $20      $30          $40           $50        $60        $70       $80       $90      $100

                                                            Monthly Premium for an Employee-Only Policy

                                               All Small Businesses         Owner is Insured      Owner is Uninsured
          Estimated Elasticity
• 73% of businesses in San Diego offer insurance
• Market price for a policy like FOCUS was
  approximately $145 for a single employee
• At $60 for a single employee, we estimate 20% of
  the remaining businesses would offer, bringing the
  total offering rate to 79%
• A 57% reduction in price is expected to increase
  the offering rate by 7.8% -- an elasticity of -0.14
            Figure 3: Distribution of San Diego Small Businesses Not Offering Insurance by
                                      Number of Uninsured Workers




                           90                                20 to 50

                           80              10 to 19


                           70to 9
                            5

                                                                                               Zero Uninsured Workers
                           60
                           50
                           4
                                                                                                       East
                           40                                                                          West
                                                                                                       North
                           30
                           20
                            3


                           10
                            0                  2
                                    1st Qtr           2nd Qtr                       4th Qtr
                                                                        3rd Qtr1 Uninsured Worker

Source: UCSD survey of San Diego employers, 2001.
Note: Unweight ed N = 492 businesses. W eight ed N=10,636 businesses.
 Can the results be generalized to
          other settings?
• Information costs -- not all eligible businesses
  were aware of the offer
• As a result of income related premiums and
  requirement that worker be uninsured in order to
  be eligible, at some businesses, not all workers
  were eligible
• If owner was insured, business was not eligible
• Location on the border with Mexico may result in
  less interest in insurance than elsewhere
     Limitations of the analysis
• We were required to estimate the number of
  businesses that were eligible to purchase
   – Reasonable upper and lower bounds are that between
     17% and 24% of eligible businesses purchased
• Because employee income and employee
  premiums are highly correlated, we are unable to
  separately estimate the effects of income and
  premium
• Experiment was not double-blinded
               Conclusions
• Small employers are not THE problem
  – Including dependents, full-time workers at
    small firms that do not offer insurance account
    for 21% of the uninsured
            Conclusions (cont.)
• Uninsured workers in small firms are
  concentrated in a very small number of firms: of
  the 40,000 small firms in San Diego, 3% of the
  firms account for over 50% of the uninsured
  workers in small businesses
           Conclusions (cont.)
• When offered insurance at $60 per month for a
  single employee (a 57% subsidy), approximately
  20% of eligible firms that do not offer insurance
  will start offering
• At $20 per month, 40% purchase
• Either employees do not value even very low
  priced insurance, or employers are not acting as
  agents for employees (and/or compensating wage
  differentials are more theoretical than real)
                Summary
• The small employer market is a smaller
  target than is sometimes thought
• Even very substantial subsidies have limited
  effect on employer decisions
• Programs that subsidize insurance for small
  businesses are unlikely to have a substantial
  effect in reducing the number of uninsured
                    Figure 4. Distribution of the Uninsured in San Diego,
                       by Employment Status of the Head of Household


                                                                                       Full-time Worker in a firm
                           Non-Workers                                                 with < 51 employees that
                               14%                                                      does not offer insurance
                                                                                                  21%




Part-Time Workers
       12%




                                                                                                  Full-time Worker in a firm
                                                                                                  with < 51 employees that
     Self-Employed                                                                                      offers insurance
           9%                                                                                                 16%



                                                                                     Full-time Worker in a firm
                   Full-time Worker in a firm                                        with 51+ employees that
                   with 51+ employees that                                            does not offer insurance
                         offers insurance                                                        7%
                               21%
   Source: Employment status of the uninsured from 2001 California Health Interview Survey.
   Unins ured part-t ime workers, non-workers, and children are assigned t o the ins urance and
   employment status of the family head, using analysis of data from the merged February and
   March 2001 Current Population Survey. Unins ured full-t ime workers are characteriz ed by
   their own employment status.
                                                            Figure 1: Percent of San Diego Businesses Offering
                                                                          Insurance, by Firm Size

                             100%

                              90%                                                                                              87.4%

                                                                                                                      80.8%
                              80%              90                                                        74.7%                           73.5%

                                               80
Percent Offering Insurance




                              70%                                                    65.7%

                              60%              70               60.2%



                              50%
                                               60
                                            48.9%

                                               50                                                                             East
                              40%
                                               40                                                                             West
                              30%                                                                                             North
                                               30
                              20%
                                               20
                              10%
                                               10
                               0%
                                                0
                                               2
                                                        1st Qtr
                                                             3
                                                                           2nd Qtr
                                                                                 4
                                                                                               3rd Qtr
                                                                                                     5
                                                                                                                 4th Qtr 10
                                                                                                                      6 to    11 to 50   Total
                                                                                       Number of Full-Time Employees



                             Source: UCSD survey of San Diego employers, 2001. Not e: Unweighted N = 2,830.

				
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