When Getting Rid Of Health Coverage Makes Economic Sense

At first glance, the development looks ominous: In 1989, when the Bureau of Labor Statistics surveyed large and midsize companies employing 31 million full-time workers, it found that 10% of employees were not covered by employer-provided health insurance. Now, the BLS reports that a similar survey in 1991 showed that 20% were not participating in such plans.

BLS officials note that while there was no change in the overall availability of health insurance between 1989 and 1991, more workers than in the past were required to pay part of the cost for their insurance plans. And average employee premiums for family coverage rose sharply, by 35%. Thus, higher premiums apparently induced many workers to opt out of their health plans.

That doesn't mean that they lack coverage entirely, however. According to benefits consultants, many large employers have been seeking to eliminate "redundant" coverage, where workers are covered both by their own plan and that of their spouse. Because plans differ in details, dual coverage lets many workers minimize out-of-pocket medical expenses. This is expensive for employers and reduces the cost sensitivity that experts claim could moderate soaring health-care spending.

The upshot is that many employers have boosted employee premiums for family coverage, both as a cost-sharing measure and to spur employees to drop redundant insurance. Indeed, consultants Towers Perrin note that some companies have actually begun to pay employees to drop out of their plans if they also have coverage elsewhere. One major corporation, which offered employees cash incentives of up to $1,500 each for such action, says it saved $500,000 a year.

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