EBS ART CWC 8/94 HEALTH OFFERINGS & CHOICES SMALL ESTABLISHMENTS SM Health Insurance: Employer Offerings and Employee Choice in Small Private Establishments Michael Bucci and Robert B. Grant* In the past, choosing an employer-paid health care plan was an easy task for employees. Employers usually offered only one plan, and it was most likely a traditional fee- for-service plan. More recently, large companies and governments often offer numerous plans, as well as various types of health care plans. Employees of small establishments, however, have not experienced such a trend. If they are offered health care, they typically have very few choices. New data from the Bureau of Labor Statistics show that in 1992, only six percent of small private establishments offered more than one health plan to their employees, and only 12 percent of employees in small private establishments could choose from more than one health plan type. Many health care proposals are being debated in Congress and in various State legislatures, and a large number of them could increase the number of health care choices facing workers in small establishments. One example is the Clinton Administration's proposal, the Health Security Act of 1993, which mandates the creation of regional health care alliances through which employers with fewer than 5,000 employees would purchase insurance. These alliances would "manage" competition among qualified health care plans on behalf of their members, and would have to offer at least one traditional fee-for-service plan as well as two other types of plans. Currently, the most common types of health care plans offered by employers are traditional fee-for-service plans, health maintenance organizations (HMO's), and preferred provider organizations (PPO's). Traditional fee-for-service plans generally reimburse a certain percentage of the employee's health care costs, regardless of the health care provider from whom he or she receives care. HMO's and PPO's differ from traditional fee-for-service plans in that the level of reimbursement varies depending on the health care provider used. HMO's provide benefits to members on a prepaid basis, and typically cover most benefits in full or subject to a small copayment. Members must visit a panel of hospitals and doctors designated by the HMO to receive benefits.1 PPO's also designate a panel of doctors and hospitals, but reimburse their enrollees for services provided by non-panel providers at a lower rate than services from panel providers. The Bureau's Employee Benefits Survey has presented data on the percentage of workers participating in each type of health care plan since 1979.2 However, these data do not represent the choices presented to workers. To illustrate this point, consider the percentage of full-time small establishment workers participating in PPO's in 1992. Only 16 percent of health care participants received health insurance from a PPO, but 79 percent of the workers offered a PPO chose it. This discrepancy is due to the fact that only 20 percent of employees were offered a PPO. The new data being presented take into account the choices facing workers,3 and therefore represent the preferences of workers in small establishments. Similar data for the other sectors of the economy studied by the Employee Benefits Survey is or will be available in the future. Data on State and local governments were published in "Health Insurance: BLS Reports on Employer Offerings and Employee Choice in State and Local Governments, 1992" (Summary 94-1). Data on medium and large private establishments are being prepared for a forthcoming Monthly Labor Review article. Plan offerings and choices In 1992, three-fifths percent of small private establishments offered their employees some type of health insurance plan, either paid for in full or in part by the employer. (See table 1.) Of those establishments that did offer a health plan, the vast majority offered just one plan. In fact, only about 4 percent of small establishments that did offer a health plan offered 3 or more plans. While approximately two-fifths of the small establishments in the 1992 survey did not offer employer-sponsored health insurance to their employees, these establishments did not employ an equal percentage of the workers found in small establishments. Four-fifths of full- time employees in small private establishments were offered a health insurance plan by their employer, indicating that establishments with more workers were more likely to offer health care to their employees. Larger-sized establishments, as well as being more likely to offer health insurance, were also more likely to offer more than one plan. The six percent of small establishments that offered more than one plan employed 18 percent of small establishment employees. One-half of those small establishments that provided coverage offered at least one wholly employer paid health plan for individuals while one-quarter offered at least one plan with wholly employer paid family coverage.4 (See table 2.) There were rather significant differences in the likelihood of an establishment offering fully employer paid coverage depending on the type of plan offered. Approximately one-half of establishments that provided individual coverage under a PPO or fee-for-service offered at least one plan that was wholly employer financed. This figure decreased to just over one-third for HMO's. The most frequent type of plan offered by establishments was a fee-for-service plan. (See table 3.) Seventy-eight percent of establishments offering health care offered a fee-for- service plan, 13 percent offered an HMO, and 15 percent offered a PPO.5 The large majority of small establishments offered just one type of plan, with fee-for-service plans being the most prevalent. (See table 4.) When more than one type of health plan was offered, the most frequently observed combination offered was an HMO in conjunction with a fee-for-service plan.6 While only six percent of small establishments that offered health care offered more than one plan type, 12 percent of employees offered health care could choose from among different provider types. (See table 4.) Sixty-two percent were offered a fee-for-service plan only, while approximately 14 percent were offered a PPO only and 11 percent were offered an HMO only. Of employees offered more than one type of plan, the two most prevalent combinations offered were an HMO along with a fee-for-service plan, and an HMO with a PPO. When employees could choose between a PPO and an HMO, participants were split fairly equally between the two. However, nearly two-thirds chose a fee-for-service plan over an HMO when faced with that choice. Other combinations were offered to only a small portion of the workforce, so participation estimates were not statistically reliable. (See table 5.) These results demonstrate the effect that the availability of different plan types has on health care participation data. For example, of all health care participants with a choice among health plans, 47 percent chose a fee-for-service plan, 33 percent chose an HMO, and 20 percent chose a PPO. However, these data are somewhat misleading, because only two-fifths of medical care participants with a choice among health plan types had a PPO as an option. (See table 4.) In fact, just under one-half of participants offered a choice that included a PPO chose one. The following table indicates the percentage of workers who chose a particular type of plan when offered a choice that included that plan type: Choice Included Percent choosing plan type Fee-for-service 55 HMO 35 PPO 43 Plan financing may be one of the reasons that HMO's were chosen the least often when they were offered. A smaller percentage of medical care participants had wholly employer- financed coverage available for HMO's (37 percent), compared to PPO's and fee-for-service plans (54 and 50 percent, respectively).7 Additionally, according to data from the 1992 survey of employee benefits in small establishments, the average monthly premium for family coverage in non-HMO plans was $147.03. This compares with $168.31 for HMO's.8 Finally, 9 percent of small establishment workers were not participants in a health plan, but were in an occupation that was offered at least one health plan. Possibly these employees could not afford the plan premiums, or had not yet completed service requirements necessary to participate. An additional possibility is that they waived their employer's coverage because they were covered as a dependent under another plan. Compared to their colleagues working for large establishments and governments, small establishment workers have very little control over their health care coverage. Approximately one-tenth of full-time employees in small establishments can choose from different health care types, with nearly all of the rest forced to choose between a traditional fee-for-service plan and no coverage at all. As a result, seven-tenths of small-establishment employees in 1992 participated in traditional fee-for-service plans, with the remainder in HMO's and PPO's. However, by focusing on those employees with a choice among health care plans, one can see that HMO's and PPO's are popular options when offered. This fact, coupled with health care legislation that could possibly force employers to offer more types of plans, points to a likely increase in HMO and PPO participation in the future. Notes: 1. Includes other combinations not shown separately below. Michael Bucci and Robert B. Grant are economists in the 1 Some HMO's have a "point-of-service" feature, through which members can receive benefits from non-panel providers for a reduced reimbursement rate. The main difference between point-of-service HMO's and PPO's is that HMO's are prepaid. 2 The Employee Benefits Survey has provided information on the incidence and provisions of employer-provided benefit plans since 1979. The Survey includes details on paid leave, insurance, and retirement plans. Three different sectors of the economy are studied. Medium and large private establishments (100 or more employees) are studied in odd years, State and local governments and small private establishments (fewer than 100 employees) are studied in even years. Data in this article are from the 1992 survey of small private establishments. 3 Certain characteristics of the data that were analyzed must be understood. Estimates from the Employee Benefits Survey are calculated from data on the benefits characteristics of employees in selected occupations, not the characteristics of establishments. Data are collected after selecting occupations with probability proportionate to size of occupational employment within each surveyed establishment. Therefore, it is possible that the selected occupations may not be offered certain types of benefits while non-selected occupations are offered these benefits. In this case, the establishment would be recorded as not offering the benefit, when in actuality it does. However, the probability selection of occupations across a nationwide sample limits the effect of such an occurrence. For more information, see Appendix A: Technical Note in Employee Benefits in Small Private Establishments, Bulletin XXXX, 1992, Bureau of Labor Statistics, 1994. Additionally, in 1986, an internal analysis was conducted to assess the possibility of this situation occurring prior to the Employee Benefits Survey beginning data collection in the way described above. The internal analysis indicated that the situation, while possible, was remote enough that it would have only a negligible effect on the data. In addition, for this particular study, a key assumption was made concerning the data. It was assumed that all employees in an establishment were offered a particular plan if at least one employee in a selected occupation participated in the plan. However, it may be true that employees that do not participate in a health plan were not offered it. For example, an establishment may offer two separate plans, an HMO for salaried employees and a fee-for- service plan for hourly workers. Under the above assumption, both groups of workers would be shown as being offered a choice between a fee-for-service plan and an HMO. To determine the effect on the data, the data were tabulated under the above assumption (assumption A), then were tabulated assuming that a selected occupation with no participants in a particular plan were not offered that plan (assumption B). The data for each assumption were then compared, and the differences were negligible. This study uses assumption A throughout. This decision was made after evaluating the results obtained under both assumptions and conducting a detailed review of each surveyed establishment to determine the likelihood of improperly classifying the occupation. Establishment estimates are not affected by either assumption because an establishment is recorded as offering a plan regardless of which employees participate in the plan. A more complete description of the assumptions and statistical measures used to validate the reliability of the data may be found in "Health Insurance: Employer Offerings and Employee Choice in the Private Sector," Monthly Labor Review, forthcoming. 4. For an establishment to be considered as offering a wholly employer financed plan they need to offer only one such plan, even if the rest of the plans offered by the establishment require an employee contribution. The same applies for employees offered a partially employer financed plan. 5. The total exceeds 100 percent because some employers offered more than one type of plan. 6. It should be noted that there is a distinct difference between offering more than one plan and offering more than one type of plan. A single employer may offer three plans but all of these plans may be HMO's. In such an instance, this would be recorded as offering more than one plan but not as offering more than one type of plan. 7. This may be due to the fact that HMO benefits are by definition prepaid, as opposed to PPO's and fee-for-service plans, which pay benefits as they are incurred. 8. Employee Benefits in Small Private Establishments, 1992, Bulletin 2441, Bureau of Labor Statistics.