The purpose of this study is to identify the important factors that are associated with the lack of insurance for the roughly 30 million Americans who are medically uninsured. Many of the uninsured are employed by small firms. A number of proposals seek to ameliorate the problem by changing the availability and affordability of group health insurance for small firms. Proponents of this approach contend that if insurance prices were the same for small firms as for large firms, that coverage rates would be similar. Although price differentials do exist in the insurance market and contribute to the problem of lower coverage rates among small firms, there is growing evidence that other' factors contribute to the observed differences in coverage (e.g., heterogeneous workers). Thus, an analysis of firm size differentials in the lack of health insurance coverage is central to understanding the problem and the likely impact of proposed strategies to solve it. Many studies and policy proposals have focused on firm size alone as the critical determinant of health insurance coverage. These studies and proposals ignore the fact that individuals employed by small firms may be different from those employed by large firms, and that these differences may affect their demand for health insurance. Using data from the 1987 National Medical Expenditures Survey, I will: 1) examine the relationship among firm size, personal characteristics, work-related factors, and insurance coverage; and 2) decompose the gap in health insurance coverage between employees of large and small firms into the portions attributable to worker characteristics, firm size effects, and the interaction of worker and firm size factors. The results of the study will help clarify the relative importance of various explanations for the gap in health insurance coverage between employees of large and small firms. The study should shed light on the likelihood that reform measures aimed at small firms will succeed.
