How is Employer-sponsored Health Insurance Changing in Response to an Aging Workforce?

The strong positive association between age and health-care utilization poses a challenge to employers’ ability to provide health insurance coverage that simultaneously satisfies the preferences of younger and older workers. Rising health care costs and an aging workforce are both likely to make that challenge more acute.

One potential response is for employers to discontinue offering ESI, but alternatively they may change the kinds of plans they offer to adapt to the age distribution of their workforce. The question of how employers adapt ESI to age differences is related to an existing literature that looks at the effects of heterogeneity in worker characteristics on employers’ health plan choices,[1] but here we focus more specifically on the age dimension.

One barrier to understanding how shifts in the age distribution affect ESI choices is that few datasets include detailed information on both workforce demographics and health plan offers. In this paper, we use a newly developed data set that combines detailed information on employers’ health insurance plan offerings from the Medical Expenditure Panel Survey-Insurance Component (MEPS-IC) with employer-specific workforce age-by-gender distributions derived from Census’s Longitudinal Employer-Household Dynamics database.

The MEPS-IC collects comprehensive data on up to four ESI health plans, including costs (premiums, deductibles, and co-insurance), eligibility and enrollments, and plan design (type, health savings accounts, prescription drug coverage). The MEPS-IC also contains information on employer characteristics (number of employees, geography, retiree health insurance). While MEPS-IC survey questions do ask about some employee characteristics, they are fairly general (e.g. the share of workers aged 50 or older) so the linked data provide substantially more detail.

In addition to age-by-gender distributions, our dataset also incorporates employer-specific measures of earnings and turnover rates by age which we use as additional controls to better understand the effects of age. Our data span the years 2002-2014, a period over which the share of the workforce age 55 to 64 rose from 11 percent to 17 percent (Bureau of Labor Statistics).

By modeling ESI benefit offerings as a function of worker ages along with covariates measuring health plan, employer and other employee characteristics, we answer questions on how employers’ ESI decisions relate to the health risks of their workers and respond to heterogeneity in employee preferences for coverage.

We use these data to address the following questions:

1. Has ESI coverage fallen more among firms with primarily older workers? Or among employers with substantial numbers of both older and younger workers?
2. Are plan cost-sharing provisions influenced by workforce age distributions? For example, consumer-directed plans with lower premiums and higher out-of-pocket costs are likely to hold greater appeal for younger, healthier workers, and thus less likely to be offered by firms with mostly older employees.
3. Does the number and breadth of ESI offers differ by workforce age distributions? In particular, do employers with greater age diversity in their workforce provide a wider range of ESI options?

[1] See for example, Moran, Chernew, and Hirth (2001) and Bundorf (2002).