MACROECONOMIC INFLUENCE ON HEALTH INSURANCE

There has been much speculation about the extent to which the economy and, more specifically, a recession, influences health insurance coverage. A study by John Cawley and Kosali Simon, funded by the Economic Research Initiative on the Uninsured (ERIU), investigates the specific channels through which macroeconomic fluctuations affect the probability that individuals have health insurance.

FINDINGS
Effects of Unemployment
Unemployment rates and income levels are better predictors of coverage than are other indicators of recession, such as movements in Gross Domestic Product (GDP) and related measures of economic activity. Cawley and Simon found that increases in unemployment rates significantly reduce the probability of coverage and that the effects are different for men, women, and children. Specific findings include the following..

A one percentage-point increase in the state unemployment rate is associated with:

• For men, a 0.34 percentage-point decrease in the probability of any coverage (t-stat 9.66). This reflects a large drop in own employer sponsored insurance (ESI) coverage that is offset in part by an increase in coverage through a spouse’s ESI. Government programs do very little to offset the cyclical effects on coverage that men experience.
• For women, a 0.26 percentage point decrease in the probability of any coverage (t-stat 8.23). This reflects a decline in both own ESI and in spousal coverage, but government programs offset much of the decline in private coverage. Women experience a 0.18 percentage point increase in the probability of government coverage (t-stat 7.25).
• For children, a 0.30 percentage-point decrease in the probability of any coverage (t-stat 8.19). This reflects a large drop in private dependent coverage that is offset substantially, but not fully, by increased government coverage.

Effects of Declines in Total Output
Declines in total economic output reduce the probability of coverage from any source. A decline of $1,000 in per capita gross state product (GSP), holding unemployment constant, is associated with a:

• 0.10 percentage-point decrease in the probability of any coverage for men (t-stat 4.28).
• 0.14 percentage-point decrease in the probability of any coverage for women (t-stat 6.25).
• 0.25 percentage-point decrease in the probability of any coverage for children (t-stat 9.17).

Effects of the 2001 Recession
The U.S. economy was in a recession from March 2001 through November 2001. During this time period, the unemployment rate rose from 4.2 percent to 5.6 percent. Real per-capita gross domestic product (GDP) rose slightly, from $31,827 to $31,892. Using regression results from analyzing data from 1990 to 2000, Cawley and Simon estimate that 1,009,000 individuals lost health insurance coverage due to macroeconomic conditions during the 2001 recession and that only 137,000 had gained health insurance due to improvements in those same conditions between January 2001 and August 2003.

POLICY IMPLICATIONS
Global recession indicators alone cannot explain much of the relationship between the economy and levels of health insurance coverage. Income and unemployment are crucial to understanding cyclical patterns of coverage. For children, government programs currently soften most, but not all, of the effects on ESI coverage of rising unemployment and falling income. Such programs are less effective for women than for children but still provide some support. Government programs provide very little support for men, a group that has not been the focus of public coverage expansions.

Many government programs are targeted to individuals without employment or with low incomes. This study suggests that during economic downturns, ESI coverage declines even among those who remain employed and do not experience significant income loss. Existing programs are not designed to bridge these types of coverage gaps.

CAVEATS
The study does not specify the causal mechanism through which unemployment has an effect on coverage. Unemployment is often associated with income loss, and the loss of coverage may simply be one example of a family getting less of everything when income falls. Other omitted time-varying factors, such as health insurance premiums, may affect the results if they are correlated with the business cycle. Consequently, findings from this study cannot be used to gauge how particular interventions would affect the number with health insurance.

Differences between employer and employee responses also cannot be distinguished. Employers could be less likely to offer coverage, or more likely to increase premiums, when the employment market is soft. Workers may be more willing to take jobs without health insurance when unemployment rises and jobs are harder to come by.

Finally, the estimate of coverage losses during the 2001 recession is smaller than other published estimates (such as those from Families USA). This difference reflects in part the inclusion in this study of controls for coverage losses attributable to non-economic factors. Other sources of variance between the estimates cannot be determined.

DATA SOURCE
The Survey of Income and Program Participation (SIPP) panels covering the period 1990 to 1999, and the National Longitudinal Survey of Youth (NLSY) 1979 panel covering the period 1983 to 2000. State unemployment rates are taken from the Bureau of Labor Statistics Local Area Unemployment Statistics series. Gross State Product data are taken from Regional Accounts data generated by the Bureau of Economic Analysis, Department of Commerce.

METHODOLOGY
Linear probability models with fixed effects, macroeconomic conditions (state unemployment, Gross State Product), and basic demographic characteristics (age, marital status, education, and family size).

CITATION
Health Insurance Coverage and the Macroeconomy
John Cawley and Kosali Simon, Cornell University

Presented at ERIU Research Conference: Coverage Dynamics and the Uninsured, July 2003.

The final version of the paper appeared as: Cawley, John and Kosali I. Simon. “Health Insurance Coverage and the Macroeconomy.” Journal of Health Economics, 2005: 24(2):299-315.

ERIU Working Paper #24 (Adobe PDF)

Back to top