Health insurance costs and declining coverage

The share of health-care spending in GDP has been rising rapidly in the United States and other advanced industrial countries since at least 1960. As Jones (2005) and others have argued, the rapid increase in the price of medical care likely is demand-driven to a large degree, reflecting the high value that consumers in wealthy countries assign to medical technologies that improve the quality of life and extend its duration. ; A potential flipside to rising health-care costs, however, is declining health-care coverage. As documented in a recent report from the U.S. Census Bureau (DeNavas-Walt et al. 2006), the percentage of uninsured Americans rose in 2005, continuing a trend that started around 2000. The recent decline in overall coverage reflects a longer-term trend towards reduced coverage through employer-sponsored insurance (ESI) plans. This dual pattern of rising prices and declining coverage suggests that some households are opting out of health coverage as its relative price rises. In this Economic Letter, we investigate the trend towards declining insurance coverage, focusing on the recent trends in ESI coverage and costs and underlying changes in employee participation rates. In the conclusion, we use available research results to project long-term coverage declines in response to further cost increases.