Health Insurance Coverage of the Unemployed

April 17, 1996

Table of Contents

• Abstract

• Introduction

• Overview

• Health Insurance Coverage

• COBRA Eligibility

• Measurement of COBRA Eligibility Using the April 1993 CPS

• COBRA Eligibility and Health Insurance Coverage

• Eligibility for Spouse Employer Coverage and COBRA

• Statistical Models of Health Insurance Coverage and COBRA Eligibility: Theoretical Considerations

• Binary Logit Analysis

• Multinomial Logit Analysis

• Male-Female Differences Among the Unemployed

• Conclusions

• References

• Appendix

• Endnotes

• End Credits

Abstract

We use the 1993 April CPS to examine how health insurance coverage rates of the unemployed differ by age, gender, marital status, education, number of children, and length of time unemployed, and other characteristics such as income and disability of the spouse. At the same time, we investigate the effects of COBRA eligibility on health insurance coverage. We estimate binary logit and multinomial logit models of the health insurance outcomes of the unemployed as functions of COBRA and spouse's employer insurance eligibility and worker characteristics. We find that after controlling for these characteristics, COBRA eligibility increases the probability of health insurance coverage among the unemployed by .075. Unemployed women have higher health insurance coverage rates than unemployed men. However, women are less likely to elect COBRA coverage than men, and therefore have lower rates of coverage from their former employers than men.

Introduction

When health insurance is provided through the place of employment, interruptions in the employment relationship disrupt health insurance coverage. The Consolidated Omnibus Reconciliation Act (COBRA), enacted in 1986, contained provisions designed to partly remedy this problem. Most employees are able to purchase health insurance from their former employer for up to 18 months after their employment ends, at a premium not to exceed 102% of the group rate. If workers are reluctant to change jobs because of health insurance considerations, COBRA can improve the efficiency of the labor market. Perhaps more important, COBRA potentially increases the health insurance coverage of the unemployed.

While not universally elected, COBRA does appear to increase the health insurance coverage of the unemployed. Using CobraServ data for 1990-91, Flynn (1992) reports that 21% of workers who qualified, elected COBRA continuation coverage. Others attempt to provide a more precise estimate of the effect of COBRA on the health coverage of the unemployed by holding a number of demographic characteristics and other factors constant. Using data from the Survey of Income and Program Participation (SIPP) and holding constant age, education, and months since job loss, Klerman and Rahman (1992) find evidence of a positive effect of COBRA legislation on the health insurance coverage of the non-employed.

In an important recent study, Gruber and Madrian (1995a) examine health insurance coverage among the non-employed, using longitudinal data from the SIPP for 1983 to 1989 for men aged 25-54. They find that the likelihood of having health insurance drops by approximately 20 percent after a worker is separated from his job. However, they find that state and federal health insurance continuation mandates such as COBRA increase the likelihood of coverage among the non-employed by 6.7 percent. They also find that the estimated effect of continuation mandates varies by the duration of the spell of unemployment. The effect of continuation mandates is insignificant for those with completed durations of one year or less. However, the effects are substantially larger for those with durations of more than one year, presumably the group with the greatest need. For instance, for those with unemployment durations of more than one year, a continuation mandate of one year increases the likelihood of insurance coverage by 9.4 percent (Gruber and Madrian, 1995a, p.23).

COBRA type legislation also appears to have the intended effect on labor market efficiency. Gruber and Madrian (1995a) find that health insurance continuation mandates increase turnover, and are associated with significant wage gains in subsequent jobs. Thus, these mandates appear to reduce job lock and to lead to more productive job search by individuals seeking new jobs. Finally, COBRA type mandates influence workers decisions when to retire. Using SIPP and the March Current Population Survey (CPS) data, Gruber and Madrian (1995b) and Karoly and Rogowski (1994) find that health insurance continuation laws increase retirement probabilities among older workers.

This previous work appears to show that, on average, COBRA legislation has the intended effects on health insurance coverage and labor market transitions. However, there are important differences in health insurance coverage across the unemployed population. These differences may in part be due to different responses to the availability of COBRA. The U.S. Department of Labor (1994, p. F-27) uses the April 1993 Current Population Survey (CPS) to provide some preliminary cross-tabular analysis of the health insurance coverage of unemployed workers by various characteristics. Older workers and higher income workers are more likely to have coverage through their former employer.

Perhaps the most interesting differences are by gender. According to the 1993 April CPS, the health insurance coverage rate of unemployed females exceeded that of unemployed males (48.5% vs. 36.9%). Among those covered, however, 36.2% of the males were covered by a former employer compared with only 18.4% of the females. It is important to disentangle the reasons behind this gender difference in health insurance coverage among the unemployed. In this study, we use the April 1993 CPS to examine the reasons for this gender difference in coverage rates by the former employer. Part of the difference could be due to coverage under spouse's plans. Other studies have not examined the effect of the availability of spouse coverage on COBRA election. Alternatively, there may be higher coverage rates for women from public sources such as Medicaid. Unemployed women may have disproportionately been in jobs before they were unemployed that did not have health insurance and thus not be eligible to take advantage of COBRA.

We also examine differences in health insurance coverage rates and use of COBRA by other characteristics such as age, income, and length of unemployment. In addition to cross-tabular analysis of coverage rates and COBRA eligibility among the unemployed, we estimate logit models of health insurance coverage in order to provide a more precise estimate of the effect of COBRA on coverage.

This project offers an improvement over the existing literature in several ways. First, the April 1993 CPS is the most current available data for studying health insurance of the unemployed. Second, previous studies have been limited in the sample used, the range of determinants of health insurance coverage examined, or in the health insurance outcomes studied. For example, Flynn (1992) is only able to examine COBRA coverage for ages 40-64 using the August 1988 CPS. The April 1993 CPS questions cover ages 25-64. Klerman and Rahman (1992) estimate a model of coverage for the unemployed that includes measures of length of unemployment, age, education, and COBRA eligibility. We examine these differences along with the effects of a much broader range of characteristics than those employed by Klerman and Rahman (1992). Gruber and Madrian (1995a) consider only males in their analysis of health insurance of the unemployed. However, as already mentioned, there are important gender differences in health insurance coverage among the unemployed. Finally, unlike previous studies, the use of the 1993 April CPS data allow us to consider multiple categories of health insurance coverage of the unemployed including coverage by a former employer, coverage through a spouse's employer, and other types of coverage.

Overview

Health Insurance Coverage - The April Current Population Survey (CPS) public use tapes contain the Employee Benefit Supplement as well as the April-March CPS matched records for rotations 2, 3, 6, and 7. Those individuals between the ages of 25 and 64 who were not employed but had previously been employed and were actively looking for work in the last 4 weeks (the experienced unemployed) were asked questions about their pension and health coverage. From the April 1993 CPS, we calculate that 41.62% of the experienced unemployed have some form of health insurance coverage (a_s84=1).⁽¹⁾

The CPS also contains demographic and other characteristics of the unemployed. For example, the CPS contains information on a worker's gender, age, education, race, number of children, income, amount of time unemployed, and reason unemployed, in addition to many other characteristics.⁽²⁾ In Table 1, we show the mean proportions of the unemployed that fall into various demographic and unemployment categories by health insurance status. The insured sample has a higher proportion who are female than does the sample without insurance. Similarly, the insured sample has a higher proportion who are over 50 years old, a higher proportion who are white, a higher proportion who have greater than a high school education, a higher proportion who have one or more children, a higher proportion who are married, and a higher proportion who have income more than $25,000 than does the uninsured sample. The differences by income and marital status appear particularly large.

COBRA Eligibility - In 1987, the Consolidated Omnibus Budget Reconciliation Act (COBRA) went into effect, which contained provisions allowing certain former employees, spouses and dependent children to buy temporary health insurance at group rates. "Employees" eligible for COBRA can be full-time or part-time workers, agents, independent contractors, directors, and certain self-employed individuals eligible to participate in a group plan. A qualified employee is anyone who was covered by a group health plan the day before a "qualifying event." Such events include voluntary or involuntary termination of employment for reasons other than gross misconduct, or a reduction in the number of hours worked. Spouses and dependent children qualify for coverage by demonstrating that either of these events were applicable to the covered employee (who was either their spouse or parent), because of death or divorce of the covered employee, or in the case of dependent children, if they lose dependent child status under the plan's rules. If a covered employee becomes eligible for Medicare benefits, their spouse and/or dependents qualify for COBRA coverage. After a qualifying event, beneficiaries have up to 60 days to elect COBRA coverage (U.S. Department of Labor, 1990, pp. 4-5, 9).

Employees can receive coverage for up to 18 months at rates of up to 102 percent of the cost of the plan to similarly situated individuals who have not incurred a qualifying event. This coverage can be extended for up to 11 more months if a qualified beneficiary is determined under Title II or XVI of the Social Security Act to have been disabled at the time of termination or reduction in hours. The cost for the additional 11 months of coverage can be increased to 150 percent of the plan's cost. Spouses and dependent children are also eligible for 18 months of coverage if the coverage employee terminates employment or suffers a reduction in hours. Spouses and dependent children can obtain up to 36 months of coverage if they become eligible through the death or divorce of the covered employee, or if the child loses his or her dependent status under the plan (U.S. Department of Labor, 1990, pp. 6-7,15).

Certain employers are exempt from providing COBRA benefits. The law generally covers group health plans of employers with 20 or more employees during the previous year. The law covers plans provided in the private sector and by state and local governments. The law does not apply to Federally sponsored health plans or the plans of certain church-related organizations (U.S. Department of Labor, 1990, p. 2)

Measurement of COBRA Eligibility Using the April 1993 CPS - While the April 1993 CPS does not directly ask about COBRA eligibility, the series of questions on health insurance coverage allow us to construct a measure of COBRA eligibility for the unemployed. The most direct measure uses questions a_s84, a_s85, and a_s88.⁽³⁾ All of the experienced unemployed are asked this series of questions. COBRA eligible could then be estimated to be those who indicate that they have coverage from a previous employer (a_s84=1 and a_s85=1) or that they had coverage on their last job (a_s88=1). This potential measure indicates that 45.13% of workers are eligible for COBRA coverage.

This is an upper bound measure of the number of COBRA eligibles among the experienced unemployed for a number of reasons. First, some may have been unemployed for more than 18 months and thus no longer eligible for COBRA.⁽⁴⁾ Firms with less than 20 employees in the last year are not subject to COBRA. COBRA also does not apply to plans sponsored by the federal government and certain church-related organizations. Therefore, we adjust the COBRA eligibility variable in the following way. Those individuals who are in an unemployment spell longer than 78 weeks (a_wkslk>78) are coded as COBRA ineligible (COBRA=0), as are those whose last job was in the federal government (a_clswkr=2), or in a religious organization (a_ind=880). The number of employees is not available as part of the April 1993 CPS for the unemployed (it is available for the currently employed). However, as part of the April-March CPS match, we have data for most of the sample on the number of workers of the employer for the longest job held in 1992. We code as COBRA ineligible those who worked for employers with less than 25 employees in the longest job held last year (noemp=1 or 2). This revised measure indicates that 33.59% of the unemployed are eligible for COBRA. We use this measure of COBRA eligibility for the remainder of the paper.

What are the characteristics of the COBRA eligible among the unemployed? In Table 2, we show the means of various characteristics among those eligible and not eligible for COBRA. A higher proportion of the eligible sample are female than are the sample of those not eligible for COBRA. Similarly, the eligible sample has a higher proportion who are over 50 years old, a higher proportion who have greater than a high school education, a higher proportion who have one or more children, a higher proportion who are married, a higher proportion who have annual income greater than $25,000, a higher proportion who have been unemployed less than 26 weeks, and a higher proportion who quit their job than the sample of those who are ineligible for COBRA. There are virtually no differences in the race makeup of the eligible and ineligible groups.

COBRA Eligibility and Health Insurance Coverage - How many of the current unemployed take advantage of COBRA eligibility? We answer this question in Table 3 by showing various cross tabulations of COBRA eligibility and health insurance coverage. Table 3A shows that 50.35% of those who were eligible to elect COBRA at the beginning of their unemployment are currently insured. This is substantially higher than the 37.20% coverage rate among those not eligible for COBRA. In Table 3B we see that 40.64% of those with health insurance were eligible for COBRA compared to 28.57% of those without health insurance. In order to see how many of those eligible actually elected COBRA, Table 3C shows the breakdown by type of coverage into four categories: 1) former employer coverage (a_s84=1 & a_s85=1), 2) spouse's employer coverage (a_s84=1 & a_s85=2 & spouse a_s62=1), 3) other coverage (a_s84=1 & a_s85=2 & spouse a_s62!=1), and 4) no coverage (a_s84=2).

Among eligibles, 24.57% have coverage from a former employer, presumably through COBRA. Even this estimate is slightly higher than the 21% coverage election rate reported by Flynn (1992). However, we are not calculating a rate for a sample of new "qualifying events." Instead, we have a sample of the stock of unemployed at a point in time. From a policy point of view it may be the stock of the unemployed that is more relevant. It is not clear whether the a stock of unemployed persons at a point in time or a flow of new "qualifying events" would produce a higher coverage rate. The coverage rate could be higher in the flow sample because over time those in the stock sample may drop coverage due to the cost of maintaining coverage or as individuals begin to obtain spouse coverage. On the other hand, Gruber and Madrian (1995a) results suggest that the effect of continuation mandates are highest for those who are in longer spells of unemployment. In any event, it may be more important to know how much COBRA is being used among unemployed at a point in time than among the newly unemployed.

We next examine how COBRA eligibility and health insurance coverage varies across the unemployed. In Table 4, we show health insurance and COBRA eligibility cross tabulations by gender, age category, education category, number of children, marital status, race, income, time unemployed, and reason unemployed.

Coverage and COBRA Eligibility by Worker Characteristics

There exist several interesting differences in health insurance coverage and COBRA usage by worker characteristics. Males are less likely to be covered by health insurance, but are more likely to elect COBRA than are females. Females are more likely to be covered through the spouse or by other coverage than are males. Among those eligible for COBRA, workers over 50 years old, who are white, have more than a high school education, have one or more children, are married, or earn more than $25,000 are more likely to elect COBRA coverage. Whites, those with more than a high school education, and those with more than $25,000 income are more likely to have spouse and other forms of coverage as well.

Eligibility for Spouse Employer Coverage and COBRA - Clearly spouse coverage comes into play when individuals decide whether or not to exercise their COBRA rights. However, in Tables 5 and 6, we only observe health insurance outcomes, one of which is spouse coverage. What we would like to observe is eligibility for spouse coverage and not the outcome of spouse coverage. We construct an eligibility for spouse coverage variable (a_s61=1 or 3) and use it in addition to COBRA eligibility in our cross tabulations. We construct an eligibility variable with the categories: 1) COBRA eligibility, 2) eligible for coverage through spouse's employer, 3) eligible for both COBRA and spouse coverage, and 4) eligible for neither COBRA nor spouse coverage.

Table 5 shows eligibility for COBRA and spouse coverage for the entire sample of unemployed and for various demographic groups.

COBRA and Spouse Health Insurance Eligibility

A significant number of the unemployed are eligible for and take advantage of coverage through their spouse's employer. In Table 3C we saw that 14.46% of the unemployed opted for spouse's employer coverage. In Table 5A we find that 14.64% of the unemployed are eligible for spouse coverage (and not COBRA), and 8.15% are eligible for both COBRA and spouse coverage. Thus, over 60% (14.46/(14.64+8.15)) of those eligible for spouse coverage use it, compared to the 24.57% of those eligible for COBRA coverage who elect it. Coverage through one's spouse is clearly an important way for the unemployed to obtain health insurance.

Eligibility for spouse coverage varies across the unemployed. In Table 5, we see that females and those with more than a high school education are somewhat more likely to be eligible for spouse coverage than males and those with less than a high school education. The differences by race and income are striking. Nonwhites are much less likely to be eligible for spouse coverage than are whites, while very few of the unemployed with incomes less than $25,000 are eligible for coverage through an employed spouse. The income variable used in this analysis refers to total husband and wife income in 1992. Husbands and wives with combined incomes less than $25,000 in 1992 would have had relatively low income full-time jobs or a series of part-time jobs. These types of jobs are unlikely to have offered health insurance as a fringe benefit and therefore these jobs are an unlikely source of coverage for an unemployed spouse.

In order to illustrate the differences in the effects of eligibility for COBRA and eligibility for spouse coverage, we present cross tabulations of eligibility and health insurance outcomes in Table 6.

Eligibility and Health Insurance Outcomes