Why Are People Uninsured?

Health insurance is unaffordable to many.

The high cost of health insurance is consistently the most commonly cited reason for why employers do not offer coverage and why individuals do not enroll when offered coverage. Average monthly premiums in 2004 were $308 for single coverage and $829 for family coverage. Workers, on average, pay about 16 percent of premiums for single coverage and 28 percent of premiums for family coverage, with the employer paying the balance. A family of four living on $38,000 per year (about 200 percent FPL) would pay about 7 percent of gross annual income in premiums. In low-wage firms, workers tend to pay a larger share of the premium. In addition, workers' out-of-pocket expenses (e.g., deductibles and co-payments) have risen significantly since 2001. Over the past 25 years, with the exception of several years in the mid-1990s, increases in health insurance premiums have been substantially larger than increases in both workers' earnings and in overall inflation.

Although health care costs underlie many reasons why individuals do not have insurance, there are other factors that contribute to their inability to get insurance. An individual's employment status, income, and health status often affect their ability to access insurance. More than 60 percent of the non-elderly get health insurance through their employer. Still, 80 percent of the uninsured are from working families.

Many employers do not offer health insurance coverage.

The Kaiser Family Foundation/HRET Employer Health Benefits 2005 Annual Survey found that the likelihood that firms offer coverage varies significantly by characteristics such as firm size, the proportion of part-time workers, and unionization. In fact, the overall percentage of employers offering health coverage has declined significantly over the past five years. In 2000, 69 percent of firms offered health benefits to their employees, but only 60 percent of firms offered benefits in 2005. This decline was largely caused by a drop in the percentage of small firms offering coverage.

While almost all firms with 50 or more employees offer coverage, only 43.2 percent of firms with less than 50 workers offer coverage (MEPS-IC, data from 2003). Few firms offer benefits to part-time or temporary workers and firms with a large proportion of low-wage workers (35 percent or more workers earning less than $20,000 per year) are less likely to offer benefits than firms with higher wage workers. Employers in service, wholesale/retail, construction, transportation entertainment, agriculture, and forestry industries tend to have lower offer rates than other types of industries.

The Kaiser/HRET survey found that 79 percent of small employers (3–199 employees) not offering coverage said that high premiums are a “very important” reason for not doing so. When small employers do offer coverage, premiums for single coverage tend to be slightly higher than for large firms but slightly lower for family coverage. However, small employers experience greater variability in their premiums year-to-year. Small businesses tend to cover slightly fewer benefits, especially in mental health coverage, and deductibles are up to double those of large employers.

Some workers are not eligible for health insurance offered by their employer.

Sometimes workers are not eligible for health insurance because they are a part-time worker or they may be newly employed and in a waiting period before their benefits are available. Nationally, 89 percent of full-time private sector workers in firms offering coverage are eligible, but only 32 percent of part-time workers are eligible (MEPS-IC, 2003 data).

Workers and individuals do not take-up coverage that is available.

Workers who are offered coverage generally choose to participate. However, a 2004 study found that take-up rates decrease as family income goes down. Thirteen percent of low-income workers (<100 percent FPL) do not take up insurance when offered, whereas only four percent of high income workers (>400 percent of FPL) did not take up offered coverage. However, 50 percent of those low-income workers do not have insurance because neither they nor their spouse are offered insurance at all¹.

Working families are also facing increasingly unaffordable coverage. Premiums for employer-sponsored coverage increased 9.2 percent between 2004 and 2005, a decline after four consecutive years of double-digit inflation. Premiums have increased much more rapidly than the overall rate of inflation and workers' earnings.

Individuals are unable to get affordable individual coverage due to cost or pre-existing medical conditions.

Individuals and families not offered health insurance through their employer, who do not work, who are self-employed (although in some states the self-employed are eligible for small group coverage), or who are ineligible for Consolidated Omnibus Reconciliation Act (COBRA) coverage (part-time workers or workers in firms with fewer than 20 employees) can purchase coverage in the individual market. Between 5 and 6 percent of non-elderly Americans are enrolled in private individual insurance. However, those who are in this market increasingly find it to be unaffordable compared to the group market. Unlike premiums in the group market, premiums in the individual market generally vary based on age and health status. Therefore, while, individual market premiums are generally much lower than premiums in the group market -- about $3,331 annually for family coverage -- this reflects the relatively younger age of purchasers and less generous coverage. Individual market coverage that was comparable to group coverage for an older, less healthy individual would be more expensive.

In addition, it is important to note that there is no employer contribution toward the cost of individual coverage; thus, the individual is responsible for the full premium cost without the benefit of pre-tax withholding, as well as any out-of-pocket cost sharing. Further, except under certain circumstances (e.g., HIPAA conversion, COBRA) insurers in the individual market may deny coverage or charge higher premiums to individuals who the insurer believes will have high medical costs.

A coverage option available to individuals who lose their employer-based coverage is through COBRA. For those eligible for coverage through COBRA-employees of firms with more than 20 workers-the cost for family coverage can be as much as $10,000 annually (workers pay 102 percent of the total premium offered through the employer). Some states have also enacted "mini-COBRA" laws that similarly apply to firms with fewer than 20 employers.

People may be poor but not eligible for public coverage, for example, childless adults are generally ineligible regardless of income.

Although Medicaid fills in gaps in coverage for over 40 million low-income Americans, coverage for adults is very limited. Non-elderly adults must meet stringent financial eligibility standards, and even the poorest are generally ineligible if they do not have children. Parents may qualify for Medicaid, but their financial eligibility levels are set much lower than children's.

Uninsured rates vary widely across states largely due to differences in state economies and levels of employer-sponsored coverage, the share of families who live on low incomes, and the scope of state Medicaid programs. Eligibility requirements for state Medicaid programs vary and can be very strict. In addition, with often complex enrollment procedures, public coverage can be difficult to obtain and even more difficult to maintain over time.

Individuals are eligible for public programs, but are not enrolled.

Similar to the private market, not everyone who is eligible for a public program chooses to enroll. Neither Medicaid nor SCHIP has reached their full enrollment potential, leaving many eligible children still uninsured. It is estimated that fewer than 50 percent of people eligible for public programs actually enroll. Take-up rates for public programs are affected by factors such as the size of benefits, inconvenience, stigma, and information about the program. Research has found that convenience of enrolling had the largest effect on take-up rates. Programs with automatic enrollment had significantly higher participation than other programs².

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