2 er hi - NBER WORKING PAPER SERIES HEALTH RISK INCOME AND...

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NBER WORKING PAPER SERIES HEALTH RISK, INCOME, AND EMPLOYMENT-BASED HEALTH INSURANCE M. Kate Bundorf Bradley Herring Mark Pauly Working Paper 11677 http://www.nber.org/papers/w11677 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2005 This project was funded by a grant from the Economic Research Initiative on the Uninsured (ERIU). An earlier version of this manuscript was presented at the ERIU 2004 Consumer Preferences and Coverage Choices Research Meeting, the 2005 AcademyHealth Annual Research Meeting, and the 2005 International Health Economics Association Meeting. © 2005 by M. Kate Bundorf, Bradley Herring, and Mark Pauly. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
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Health Risk, Income, and Employment-Based Health Insurance M. Kate Bundorf, Bradley Herring, and Mark Pauly NBER Working Paper No. 11677 October 2005 , Revised December 2008 JEL No. I1 ABSTRACT While many believe that an individual’s health plays an important role in both their willingness and ability to obtain health insurance in the employment-based setting, relatively little agreement exists on the extent to which health status affects coverage rates, particularly for those with lower incomes. In this paper, we examine the relationship between health risk and the purchase of group health insurance and whether that relationship differs by a person’s income and whether they obtain coverage in the small, medium, or large group market. Using the panel component of the 1996-2002 Medical Expenditure Panel Survey (MEPS), we find that health risk is positively associated with private health insurance across the different markets, and that this positive relationship is stronger for low and middle income people, particularly in the large group market. Our results are consistent with the existence of adverse selection in the group market in the form of low rates of coverage among low risks due to an absence of risk rating of premiums. We conclude that pooled premiums for low risks, particularly those with low incomes, may represent a more important financial barrier to coverage in voluntary group insurance than high premiums for high risks. M. Kate Bundorf Health Research and Policy Stanford University HRP T108 Stanford, CA 94305-5405 and NBER [email protected] Bradley Herring Department of Health Policy & Management Bloomberg School of Public Health Johns Hopkins University 624 North Broadway, HH #408 Baltimore, MD 21215 [email protected] Mark Pauly Health Care Systems Department University of Pennsylvania 208 Colonial Penn Center 3641 Locust Walk Philadelphia, PA 19104-6218 and NBER [email protected]
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1 I. Introduction In 2007, approximately 45.7 million Americans were uninsured (DeNavas-Walt, Proctor et al. 2008). Although obtaining health insurance is voluntary in the U.S., surprisingly little is known about the factors that determine whether an individual obtains health insurance in private markets (McLaughlin, Crow et al. 2004).
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