Health Insurance Coverage of the Unemployed: COBRA and the Potential Effects of Kassebaum-Kennedy

Transcription

1 Health nsurance Coverage of the Unemployed: COBRA and the Potential Effects of Kassebaum-Kennedy Mark C. Berger; Dan A. Black; Frank A. Scott; Amitabh Chandra Journal of Policy Analysis and Management, Vol. 18, No. 3. (Summer, 1999), pp Stable URL: Journal of Policy Analysis and Management is currently published by John Wiley & Sons. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. The JSTOR Archive is a trusted digital repository providing for long-term preservation and access to leading academic journals and scholarly literature from around the world. The Archive is supported by libraries, scholarly societies, publishers, and foundations. t is an initiative of JSTOR, a not-for-profit organization with a mission to help the scholarly community take advantage of advances in technology. For more information regarding JSTOR, please contact support@jstor.org. Tue Oct 16 14:57:

2 Health nsurance Coverage of the Unemployed: COBRA and the Potential Effects of Kassebaum- Kennedy Mark C. Berger Dan A. Black Frank A. Scott Amitabh Chandra Abstract We use the April 1993 Current Population Survey to examine the health insurance coverage decisions of the unemployed and to simulate the potential effects of the new Kassebaum-Kennedy legislation. After controlling for demographic characteristics, COBRA eligibility raises the probability of health insurance coverage by 0.095, while eligibility for spouse employer insurance increases the likelihood of coverage by , and eligibility for both increases the likelihood of coverage by n our simulations, we find that had Kassebaum-Kennedy been in effect in April 1993, 9.0 percent of the unemployed would be eligible to take up coverage, and the coverage rate of the unemployed would have been increased by 0.85 percent to 1.5 percent from 41.6 percent. Our estimates of the effect of Kassebaum-Kennedy on health insurance coverage are much lower than those reported by the Government Accounting Office prior to the passage of the legislation. O 1999 by the Association for Public Policy Analysis and Management. NTRODUCTON n April 1993, 58 percent of unemployed workers aged 25 to 64 with previous job experience were without health insurance coverage [U.S. Department of Labor et al., These 3.4 million individuals were part of the estimated 15.3 percent (39.7 million) of the population without health insurance in 1993 [U.S. Bureau of the Census, 1996, Table n order to assist the unemployed to obtain health insurance coverage, the Consolidated Omnibus Reconciliation Act (COBRA), enacted in 1986, contained provisions to enable the unemployed to avoid interruptions in their health insurance coverage. Under COBRA, many employees are able to purchase health insurance from their former employer for up to 18 months after their employment ends, at a premium not to exceed 102 percent of the group rate. ndividual states also have in place health insurance continuation mandates. More recently, the Health nsurance Portability and Accountability Act of 1996 (Kassebaum-Kennedy) was passed, which contains provisions designed to decrease Manuscript received February 1998; revise and resubmit recommended April 1998; revision received August 1998; paper accepted September Journal of Policy Analysis and Management, Vol. 18, No. 3, (1999) O 1999 by the Association for Public Policy Analysis and Management Published by John Wiley & Sons, nc. CCC

3 Health nsurance Coverage of the Unemployed: / 431 COBRA and the Potential Effects of Kassebaum-Kennedy the number of uninsured, especially among the unemployed. The Act guarantees individual health insurance coverage for individuals who have been covered by a group plan for 18 or more months, who are not eligible for any other coverage, and who have exhausted their COBRA continuation coverage. How effective will Kassebaum-Kennedy be at increasing health insurance coverage among the unemployed? The U.S. General Accounting Office (GAO) [9951 estimated that the Kassebaum-Kennedy legislation could ensure continued health insurance coverage for up to 25 million individuals per year. These include workers who change jobs and their dependents, workers facing job lock, and those who are not eligible for COBRA. Of these 25 million, the GAO estimates that 2 million are individuals who would convert to individual health insurance coverage because they are not eligible for COBRA. f the GAO's estimates are reasonable, the Kassebaum-Kennedy legislation could have a sizable impact on the number of uninsured unemployed. Unfortunately, Kassebaum-Kennedy only recently took effect, so direct evidence of its effectiveness will not be available for some time. Previous research suggests that COBRA has had a modest effect on health insurance coverage of the unemployed. Using CobraServ data for , Flynn [9941 reports that 2 1 percent of workers who qualified elected COBRA continuation coverage. Other researchers attempt to provide a more precise estimate of the effect of COBRA on the health coverage of the unemployed by holding a number of demographic characteristics and other factors constant. Using data from the Survey of ncome and Program Participation (SPP) and holding constant age, education, and months since job loss, Klerman and Rahman [9921 find evidence of a positive effect of COBRA legislation on the health insurance coverage of the nonemployed. Gruber and Madrian [9971 examine health insurance coverage among the nonemployed using longitudinal data from the SPP for 1983 to 1989 for men aged 25 to 54. They find that state and federal health insurance continuation mandates such as COBRA increase the likelihood of coverage among the nonemployed by 6.7 percent. Federal and state health insurance continuation mandates also appear to have an effect on labor market efficiency. Gruber and Madrian [9971 find that such mandates increase turnover and are associated with significant wage gains in subsequent jobs. Thus, such mandates may reduce job lock and lead to more productive search by individuals seeking jobs. Finally, health insurance continuation mandates influence workers' decisions on when to retire. Using SPP and March Current Population Survey (CPS) data, Gruber and Madrian [9951 and Karoly and Rogowski [9941 find that health insurance continuation laws increase retirement probabilities among older workers. One might be tempted to use previous COBRA evidence to predict the effectiveness of Kassebaum-Kennedy. The two continuation laws are similar and have similar eligibility rules. However, there is one major difference in eligibility rules that prevents the use of past COBRA studies to predict the effects of Kassebaum-Kennedy. Those who are eligible for other group coverage are not eligible for Kassebaum-Kennedy, but they are eligible for COBRA. Previous studies have not analyzed separately the behavior of individuals eligible only for COBRA and individuals eligible for both COBRA and other group coverage. The situation of individuals eligible only for COBRA will most closely approximate that of individuals eligible for Kassebaum-Kennedy, Fortunately, the April 1993 Supplement of the Current Population Survey [US. Bureau of the Census, permits an examination of the health insurance decisions of unemployed workers by eligibility category in a more precise manner than is possible using other data sets. Specifically, using the April 1993 CPS, we can disaggregate the health insurance eligibility of the unemployed into multiple categories, including

4 432 1Health nsurance Coverage of the Unemployed. COBRA and the Potential Eff'ts of Kassebaum-kTennedy COBRA eligibility only, eligibility for coverage through a spouse's employer only, or eligibility for both COBRA and spouse's health insurance. This provides two advantages over previous studies. First, we provide a better understanding of the health insurance decisionmaking process within the households of unemployed workers. Second, we can use the information on eligibility status to estimate the number of unemployed who would be eligible for Kassebaum-Kennedy at any point in time. We can then combine this with the observed behavior of individuals eligible for COBRA and not other coverage to more precisely simulate the potential effects of the Kassebaum- Kennedy individual coverage provisions on the health insurance coverage of the unemployed than has been possible previously. GROUP-TO-NDVDUAL HEALTH NSURANCE CONVERSON COBRA n 1987, COBRA went into effect. t contained provisions allowing certain former employees, spouses, and dependent children to buy temporary health insurance at group rates. Employees eligible for COBRA can be full-time or part-time workers, agents, independent contractors, directors, and certain self-employed individuals eligible to participate in a group plan. A qualified employee is anyone who was covered by a group health plan the day before a "qualifying event."'such events include voluntary or involuntary termination of employment for reasons other than gross misconduct or a reduction in the number of hours worked. Spouses and dependent children qualify for coverage by demonstrating that either of these events were applicable to the covered employee (who was either their spouse or parent); because of death or divorce of the covered employee; or, in the case of dependent children, if they lose dependent child status under the plan's rules. f a covered employee becomes eligible for Medicare benefits, his or her spouse and dependents qualify for COBRA coverage. After a qualifying event, beneficiaries have up to 60 days to elect COBRA coverage [U.S. Department of Labor, 1990, pp. 4-5,9]. Employees can receive coverage for up to 18 months at rates of up to 102 percent of the cost of the plan that similarly situated individuals pay who have not incurred a qualifying event. This coverage can be extended for up to 1 1 more months if a qualified beneficiary is determined under Title 1 or XV of the Social Security Act to have been disabled at the time of termination or reduction in hours. The cost of the additional 1 1 months of coverage can be increased to 150 percent of the plan's cost. Spouses and dependent children are also eligible for 18 months of coverage if the employee terminates employment or suffers a reduction in hours. Spouses and dependent children can obtain up to 36 months of coverage if they become eligible through the death or divorce of the covered employee, or if the children lose their dependent status under the plan [U.S. Department of Labor, 1990, pp. 6-7,151. Certain employers are exempt from providing COBRA benefits. The law generally covers group health plans of employers with 20 or more employees during the previous year. The law covers plans provided in the private sector and by state and local governments. The law does not apply to federally sponsored health plans or the plans of certain church-related organizations [U.S. Department of Labor, 1990, p. 21. The Supreme Court recently decided in the case of Geissal v. Moore that an employer may not deny COBRA continuation coverage under its health plan to an otherwise eligible beneficiary because he or she is covered under another group health plan at the time of election of COBRA coverage [Geissal v. Moore Medical Corporation, Thus, spouse coverage does not rule out COBRA coverage.

5 Health nsurance Coverage of the Unemployed: / 433 COBRA and the Potential Effects of Kassebaum-Kennedy Kassebaum-Kennedy Among the provisions of the Health nsurance Portability and Accountability Act of 1996 were a series of measures designed to increase the availability of individual insurance coverage. These provisions are especially relevant for the unemployed. Specifically, a health insurance issuer that offers health insurance coverage in the individual market in a state may not decline to offer coverage or deny enrollment to an eligible individual or impose any preexisting condition exclusion with respect to such coverage. An eligible individual is one who satisfies a number of conditions, the most important of which are (1) the individual must have had 18 or more months of previous coverage by a group health plan, governmental plan, or church plan; (2) the individual is not currently eligible for coverage under a group health plan and does not have any other health insurance coverage; (3) the individual was not terminated from previous coverage due to nonpayment or fraud; (4) the individual exercised the option of continuation coverage under COBRA or under a similar state program if eligible; and (5) the individual has exhausted such continuation coverage [U.S. Congress, Thus, only those who had 18 months of previous coverage but who do not have current group health insurance coverage from another source, such as the spouse, and who were ineligible for or has exhausted COBRA coverage are eligible for the Kassebaum-Kennedy individual coverage provision. Another digerence between the Kassebaum-Kennedy individual coverage provision and the COBRA continuation rules is that the Kassebaum-Kennedy legislation makes no mention of the price of the continuation coverage as does COBRA. A more detailed discussion of the Kassebaum- Kennedy provisions is contained in Kuttner [1997]. MEASUREMENT OF COBRA ELGBLTY The April CPS public-use tapes contain the Employee Benefit Supplement as well as the April-March CPS matched records. Those individuals between the ages of 25 and 64 who were not employed but had previously been employed and were actively looking for work in the last four weeks, that is, the experienced unemployed, were asked questions about their pension and health coverage. From the April 1993 CPS, we calculate that 41.6 percent of the experienced unemployed have some form of health insurance co~erage.~ While the April 1993 CPS does not directly ask about COBRA eligibility, the series of questions on health insurance coverage included in the survey allow us to construct a measure of COBRA eligibility for the unemployed. An upper bound on COBRA eligibility can be estimated by those who indicate that they have coverage from a previous employer or that they had coverage on their last job; 45.1 percent of workers fall into this category. However, this estimate needs to be adjusted downward for a number of reasons. First, some may have been unemployed for more than 18 months and thus are no longer eligible for COBRA.3 Firms with less than 20 employees in the last year are not All of the counts and tabulations in this section are weighted using the April 1993 CPS supplemental weights. The weights are designed to improve the accuracy of population counts and distributions. ' Those who qualify as disabled under the Social Security Act may be eligible for 29 months. However, those who qualify as disabled will not be looking for work and will not be counted among the unemployed and thus will not be in our data. Also, we do not consider the coverage status of spouses or dependents of the unemployed. Therefore, the 36-month eligibility period for spouses and dependents after qualifying events is also not a factor in our data.

6 434 Health nsurance Coverage of the Unemployed: COBRA and the Potential Effmts of Kassebaum-Kennedy Table 1. Health insurance coverage by COBRA eligibility status. Health insurance NO l i e or H i e or ~ 1 1 coverage status COBRA coverage (%) COBRA coverage (%) unemployed (%) Former employer coverage Spouse's employer coverage Other coverage No coverage Total Source: April 1993 Current Population Survey. subject to COBRA. COBRA also does not apply to plans sponsored by the federal government and certain church-related organizations. Therefore, we adjust the COBRA eligibility variable in the following way. Those individuals who are in an unemployment spell longer than 78 weeks are coded as COBRA ineligible, as are those whose last job was in the federal government or in a religious organization. The number of employees is not available as part of the April 1993 CPS for the unemployed (it is available for the currently employed). However, as part of the April-March CPS match, we do have data on the number of employees for the longest job held in We code as COBRA ineligible those who worked for employers with less than 25 employees in the longest job held in This measure indicates that percent of the unemployed are eligible for COBRA. We use this measure of COBRA eligibility for the remainder of the paper. Table 1 shows the breakdown of COBRA eligibles and ineligibles into four health insurance coverage categories: (1) former employer coverage, (2) spouse's employer coverage, (3) other coverage, and (4) no coverage. Among eligibles, 24.6 percent have coverage from a former employer, presumably through COBRA.S This estimate is slightly higher than the 2 1 percent coverage election rate reported by Flynn [1994]. However, we are not calculating a rate for a sample of new qualifying events. nstead, we have a sample of the stock of unemployed at a point in time. From a policy point of view it may be the stock of the unemployed that is more relevant. t is not clear whether a stock of unemployed persons at a point in time or a flow of new qualifying events would produce a higher coverage rate. The coverage rate could be higher in the flow sample because over time those in the stock sample may drop coverage due to the cost of maintaining coverage or as individuals This results in a slight overstatement of the number of ineligible for COBRA and a slight understatement in the number of COBRA eligibles because firms with more than 20 employees are subject to the COBRA legislation. Thus, because of limitations in the CPS firm size coding, anyone working in a firm with 20 to 24 employees we must consider as COBRA ineligible when in fact they should be coded as COBRA eligible. Of course, some of those who have coverage From a former employer may be early retirees whose employers provide postretirement health insurance. Even though they are retired, some older workers may go in and out of the labor force one or more times before permanently retiring. n this case some may be looking for work and thus be in the April CPS sample.

7 Health nsurance Coverage of the Unemployed: / 435 COBRA and the Potential Effects of Kassebaum-Kennedy begin to obtain spouse coverage. On the other hand, the Gruber and Madrian (19971 results suggest that the effect of continuation mandates are highest for those who are in longer spells of unemployment. n any event, it is important to know how much COBRA is being used among the unemployed at a point in time. Clearly, spouse coverage comes into play when individuals decide whether or not to exercise their COBRA rights. Spouse coverage is also very important for determining who is eligible for Kassebaum-Kennedy. However, in Table 1 we only observe health insurance outcomes, one of which is spouse coverage. We would also like to observe eligibility for spouse coverage and not just the outcome of spouse coverage. Thus, we construct an eligibility variable with the following categories: (1) COBRA eligibility, (2) eligibility for coverage through spouse's employer, (3) eligibility for both COBRA and spouse coverage, and (4) eligibility for neither COBRA nor spouse coverage. Table 2 shows the breakdown of eligibility for COBRA and spouse coverage. A significant number of the unemployed are eligible for and take advantage of coverage through their spouse's employer. n Table 1 we saw that 14.5 percent of the unemployed opted for spouse's employer coverage. n Table 2 we find that 14.6 percent of the unemployed are eligible for spouse coverage (and not COBRA), and 8.2 percent are eligible for both COBRA and spouse coverage. Thus, over 60 percent (14.5/( )) of those eligible for spouse coverage use it, compared to the 24.6 percent of those eligible for COBRA coverage who elect it. Coverage through one's spouse is clearly an important way for the unemployed to obtain health in~urance.~ n order to illustrate the differences in the effects of eligibility for COBRA and eligibility for spouse coverage, we present cross tabulations of eligibility and health insurance outcomes in Table 3. Of those eligible only for COBRA, 23.9 percent are observed to have coverage from their former employers, while 69.9 percent of those only eligible for spouse coverage elect to use it. Those eligible for both types of coverage are more likely to elect spouse coverage (51.9 percent versus 26.6 percent). Spouse coverage is more likely to be used among the unemployed than COBRA coverage, perhaps because of lower out-of-pocket expense or because it is potentially permanent Table 2. Health insurance eligibility status of the unemployed. Health insurance eligibility status Eligible for COBRA only Percentage eligible Eligible for spouse employer coverage only Eligible for both COBRA and spouse coverage Eligible for neither COBRA nor spouse coverage Source: April 1993 Current Population Survey Health insurance coverage through the spouse's employer also has an important impact on labor supply decisions. Using March CPS data from various years, Olson [9991 and Wellington and Cobb-Clark [9971 find a negative effect of husbands' health insurance coverage on wives' labor supply. Wellington and Cobb- Clark find a substantially smaller negative effect of wives' health insurance coverage on husbands' labor supply. Spouse coverage is also important in COBRA takeup decisions.

8 436 / Health nsurance Coverage of the Unemployed. COBRAand the Potential Effects ofkassebaum-kennedy Table 3. Health insurance eligibility and outcomes among the unemployed. 4 Health Eligible for Eligible for Eligible for Eligible for All insurance COBRA only spouse both COBRA neither COBRA unemployed coverage (%) coverage and spouse nor spouse (% only (%) coverage (%) coverage (%) Former i employer i coverage, Spouse's employer coverage Other coverage No coverage, Total Source: April 1993 Current Population Survey. coverage (as long as the spouse is employed), while COBRA is not. The net result is that those with eligibility for spouse coverage are much less likely to be uninsured than those with eligibility for COBRA. However, those eligible only for COBRA (and not spouse coverage) are much more likely to be insured than those eligible for neither spouse nor COBRA coverage (40.2 percent versus 24.9 percent).' MODELS OF HEALTH NSURANCE COVERAGE AND COBRA ELGBLTY n this section, we construct statistical models to estimate the effects of COBRA eligibility on the health insurance coverage of the uninsured. Unlike the tabulations in the previous section, these models allow us to hold constant the effects of other variables while examining the effects of COBRA and spouse coverage. We use binary logit models to provide estimates of the determinants of whether an unemployed individual has any form of health insurance coverage, and we use multinomial logit models to examine the choice of alternative coverage categories (former employer, other coverage, no coverage). The models use data from the regular portion of the April 1993 CPS, the Employee Benefits Supplement, and the April-March match. Binary Logit Analysis More formally, the April 1993 CPS data allow us to estimate the probability of being unemployed and having health insurance, or E(PrlX, u = ), where Pt is the probability of having insurance after being unemployed for a time t,xis a vector of characteristics, 'The rates of coverage are obtained by summing across the three coverage categories in Table 3. For those eligible for COBRA coverage, overall coverage is the sum of 23.9 and 16.3 percent, and for those eligible for neither spouse nor COBRA coverage, overall coverage is the sum of 5.0 and 19.9 percent.

9 Health nsurance Coverage of the Unemployed: / 437 COBRAand the Potential Effkcts of Kassebaum-Kennedy Table 4. Means and definitions of variables. Variable Mean Definition Health insurance (H) COBRA Spouse Both Female Age Children Married <High school Some college Associate's Bachelor's Graduate Black Other Disabled Spouse disabled Total income Source: April 1993 Current Population Survey (N = 11 39) =1 if covered by health insurance =1 if eligible for COBRA coverage =1 if eligible for spouse's employer coverage =1 if eligible for both COBRA and spouse coverage =1 if female Age in years # own children < 18 years old =1 if married spouse present =1 if has less than high school diploma =1 if has attended some college =1 if has associate's degree =1 if has bachelor's degree =1 if has more than bachelor's degree =1 if race is black =1 if race is other =1 if weeks worked in 1992 reduced due to illness or disability =1 if spouse's weeks worked in 1992 reduced due to illness or disability Sum of own and spouse's income in 1992 (dollars) and u = 1 if the worker is unemployed and zero otherwise. We can estimate this conditional probability using logit analysis. This allows us to calculate the probability that an unemployed worker will have health insurance given a set of observed characteristics X. The logit model also allows us to determine the marginal effects of changes in the X variables on health insurance coverage. ncluded in Xare our measure of COBRA eligibility, eligibility for spouse's employer coverage, eligibility for both spouse and COBRA coverage, family income, and demographic characteristics of the unemployed worker: age, education, race, gender, number of children, marital status, and disability status of the unemployed worker and his or her spouse. Formal definitions and the means of these variables and the dependent variable are shown in Table 4.8 The first column of Table 5 shows the binary logit estimates including only the insurance eligibility variables, and the second column shows the estimates including both the insurance eligibility variables and the demographic control variables. Both The results presented in Tables 4 through 8 use unweighted data. These tables show means, parameter estimates, and calculations for multivariate behavioral models rather than population summary statistics. n these cases, the weights serve primarily to correct for heteroscedasticity, which we have no reason to believe is present in these data. n addition, the weights themselves are calculated using many of the same variables already included as controls in our X vector.

10 438 /Health nsurance Coverage of the Unemployed: COBRA and the Potential Effats of Kassebaum-Kennedy Table 5. Binary logit estimates of health insurance coverage of the unemployed. Variable COBRA Spouse Both Female Age Children Married (1) ln(p(h1 = 1)P(H= 0)) coefficient (std. err.) (2) ln(p(h1 = 1)P(H= 0)) coefficient (std. err.) < High school Some college (.192) Associate's (.297) Bachelors's (.253) * Graduate 1.46 (.382)** Black ( 219) Other ( 312) Disabled (.338) Spouse disabled (.394) Total income x 10, (.040) ** Constant (.094) ** 3.28 (.362)*" Log likelihood N 1,139 1,139 Source: April 1993 Current Population Survey. *Significance at 0.05 level. **Significance at 0.01 level. COBRA and spouse insurance eligibility increase the likelihood of insurance coverage, mirroring the results of the cross tabulations in Table 3. n addition, if an unemployed worker is eligible for both COBRA and spouse coverage, the likelihood of coverage is even greater. n Table 6, we convert the estimated effects into probabilities. The probabilities using the estimates from the second column are evaluated at the means of the control variables in the model. Those eligible only for COBRA have a higher probability of insurance coverage before controlling for demographic characteristic^.^ After controlling for demographic characteristics, COBRA eligibility increases the probability of insurance coverage by This estimated effect is higher than the Our earlier cross tabulations produced similar results. n Table 3, the implied effect of COBRA eligibility only on the probability of any form of coverage is 15.3 percent (40.2 percent of those who are eligible for COBRA have some kind of health insurance coverage while 24.9 percent of those with neither COBRA nor spouse eligibility are covered ( = 15.3)). The results for those with spouse eligibility only and eligibility for both COBRA and spouse coverage are 55.6 percent and 57.2 percent, respectivelv.

11 Health nsurance Coverage of the Unemployed: / 439 COBRA and the Potential Effects of Kassebaum-Kennedy effect estimated by Gruber and Madrian [9971 using SPP data.1 There are several reasons why our estimated effects may be larger than Gruber and Madrian's. First, they use data from the 1980s when COBRA was relatively new. t may take time for information about COBRA to disseminate. f so, more recent data should produce larger estimated effects. Second, as employer provision of health insurance has fallen over time, workers are less likely to obtain health insurance on a new job or from their spouses, and therefore the propensity to opt for COBRA benefits may increase. Finally, Gruber and Madrian identify their COBRA estimates from across-state and over-time variation in the generosity of COBRA. The estimate here is identified from cross-sectional differences in COBRA eligibility based on the previous employer. f COBRA eligibility is positively correlated with unobserved factors that influence health insurance coverage that are not captured by the demographic variables, then the estimates here may be overstated and thus greater than those of Gruber and Madrian." Eligibility for spouse health insurance coverage only and not COBRA raises the probability of coverage by before controlling for demographic characteristics and after controlling for them. The probability of coverage is increased further if an unemployed individual is eligible for both COBRA and spouse coverage: before controlling for demographic characteristics and after controlling for them. Several observable worker characteristics included in the estimates reported in column (2) of Table 5 are significantly related to health insurance coverage. Age and income are significantly positively related to coverage as expected. Females, married individuals, and those with higher levels of education are more likely to be covered than males, single individuals, and those with lower levels of education. There is some evidence that disabled individuals have lower coverage rates. Multinomial Logit Analysis The binary logit estimates shown in Table 5 only consider whether an unemployed individual is covered and does not distinguish among health insurance coverage from a former employer and other sources. Therefore, we next estimate multinomial logit models that include these alternatives along with having no insurance coverage at lo Our estimated COBRA effect also appears to be somewhat larger than that estimated by Herman and Rahman [1992]. They estimate a COBRA coefficient of using a probit specification and SPP data. n order to provide a comparison with Herman and Rahman, we estimate a probit model with a similar specification to theirs using the April 1993 CPS. Our specification includes weeks unemployed, a dummy for the first month of unemployment, age, age squared, a series of education completion dummies, and a COBRA eligibility dummy. Thus, our specification is identical to Herman and Rahman, except that they use months instead of weeks worked and years of schooling instead of a series of schooling dummies. n our estimated probit model (results not shown), the COBRA coefficient is (std. error = 0.083). Evaluated at the means, the estimated increase in the probability of being covered is,090. While we are unable to translate the Herman and Rahman estimate into a comparable probability without their sample means, it appears from the magnitudes of the estimated coefficients that our COBRA effects are larger than their estimated effects. t is also possible that our results are affected by the the nature of the matching process of workers to firms. Workers with less preference for health insurance may choose to work in small firms where health insurance is less likely to be provided; where, if it is provided, it is likely to not be very generous and be more expensive; and where employees may not have the COBRA option. Workers with more preference for health insurance are more likely to choose to work in larger firms that are subject to COBRA. f this is the case, then workers in small firms who are not eligible for COBRA will be less likely to be insured when they become unemployed, both because they cannot opt for COBRA and because they value health insurance less than those who are eligible for COBRA. n other words, even if they were eligible for COBRA, they would be less likely to be insured following unemployment than would be workers who are eligible for COBRA.

12 440 / Health nsurance Coverage of the Unemployed: COBRA and the Potential Eff'ects of Kassebaum-Kennedy Table 6. Effect of COBRA and spouse insurance eligibility on the probability of health insurance coverage: Binary logit estimates. nsurance eligibility variables only [column (1) of Table 51 nsurance eligibility variables and demo. characteristics [column (2) of Table 51 Effect of COBRA Effect of spouse Effect of both eligibility on insurance eligibility COBRA and spouse probability of health only on probability of insurance eligibility insurance coverage health insurance on probability of coverage health insurance coverage Source: April 1993 Current Population Survey and parameter estimates from Table 5 all. Let denote the probability that a worker receives health insurance from a former employer after being unemployed for a time t. A worker may have coverage from an alternative source such as the spouse's employer, the government, or private health insurance, denoted by P21. The probability that a worker has no health insurance coverage is P,!. We use multinomial logit to estimate E(PttX, u = ), i = 1, 2, 3. This approach allows us not only to track who has health insurance when unemployed, but also to examine the determinants of the source of coverage.12 The multinomial logit estimates in Table 7 give the effect of a change in the X variable on the natural log of the probability of each outcome relative to the base outcome, in this case no insurance. Columns (1) and (2)show the estimates including only the health insurance eligibility variables, and columns (3) and (4) show the estimates from the model including both the health insurance eligibility variables and the demographic characteristics. Among the 1139 individuals included in the estimation, 11.5 percent have former employer coverage, 31.8 percent have another type of coverage, and 56.7 percent have no coverage. As might be expected, COBRA eligibility does not significantly affect the outcome of other coverage relative to no coverage, and spouse coverage does not significantly affect the outcome of former employer coverage relative to no coverage. As with the binary logits, the addition of demographic variables in general reduces the magnitude of the COBRA and spouse insurance effects. Table 8 shows the estimated effect of COBRA eligibility only, spouse insurance eligibility only, and eligibility for both COBRA and spouse insurance on the three health insurance outcomes evaluated. The effects l2 While we used four health insurance outcomes in Table 3 (former employer, spouse's employer, other, no coverage), we were forced to reduce the number of outcomes to three in the multinomial logit analysis for identification reasons. n particular, only those individuals eligible for spouse coverage are observed to have spouse coverage. No one eligible for COBRA only or eligible for neither spouse nor COBRA coverage is observed to have spouse coverage. Thus, it is not possible to include spouse coverage as a separate choice in the multinomial logit. nstead we aggregate spouse and other coverage, and there is no longer an identification problem. This is not a problem with former employer coverage. ndividuals are observed with and without former employer coverage in all eligibility categories.

13 Health nsurance Coverage of the Unemployed: / 441 COBRA and the Potential Effects of Kassebaum-Kennedy Table 7. Multinomial logit estimates of health insurance coverage of the unemployed. (1) (2) (3) (4) ln(p(former ln(p(other ln(p(fomer ln(p(other empl, coverage) empl. coverage) empl. coverage) empl. coverage) lp(no coverage)) lp(no coverage)) lp(no coverage)) lp(no coverage)) Variables coefficient coefficient coefficient coefficient (std, em) (std. em) (std. err.) (std. em) COBRA Spouse Both Female Age Children Married < High school Some college Associate's Bachelor's Graduate Black Other Disabled Spouse disabled Total ncome x 10,000 Constant i (.183)** Log likelihood N Source: April 1993 Current Population Survey *Significance at the 0.05 level. **Significance at the 0.01 level. i / (.102) ** using the estimates from columns (3) and (4) of Table 7 are evaluated at the means of the variables. The estimated increase in the probability of former employer coverage from COBRA eligibility only is from the estimates in columns (1) and (2) of Table 7 and is from the full specification including demographic characteristics in columns (3) and (4). This estimated increase in the probability of former employer coverage is balanced by decreases in the probabilities of other coverage and no coverage. The estimated effects on former employer coverage and no coverage are reduced by the addition of individual characteristics to the model. Eligibility for spouse coverage only increases the probability of nonemployer coverage and reduces the probability of no coverage by an almost corresponding amount and has almost no effect on the probability of having former employer

14 442 / Health nsurance Coverage of the Unemployed: COBRA and the Potential Effects of Kassebaum-Kennedy Table 8. Effect of COBRA and spouse insurance eligibility on health insurance outcomes: Multinomial logit estimates. Change in 1 Change in Change in Total change probability of i probability of ' probability of no Eltgible for coverage by i other coverage coverage COBRA only former employer nsurance +O variables only 1 i i [columns (1) and (2) 1 of Table 71 nsurance +o j variables and demographic characteristics [columns (3) and (4) of Table 71 ' Eltgible for spouse coverage only nsurance variables only [columns (1) and (2) of Table 71 i nsurance variables and demographic characteristics [columns (3) and (4) 1 of Table 71 1 Eligible for both COBRA and spouse coverage i nsurance +O variables only [columns (1) and (2) of Table 71 1 nsurance variables and demographic characteristics [columns (3) and (4) 1 of Table 71 1 Source: April 1993 Current Population Survey and parameter estimates from Table 7. coverage. The magnitudes of the effects are smaller after controlling for demographic characteristics. f an individual is eligible for both COBRA coverage and spouse coverage, the probabilities of former employer- and spouse-provided insurance both increase, and the probability of no coverage decreases. Once again, the effects are smaller after controlling for demographic characteristics.

15 Health nsurance Coverage of the Unemployed:/ 4l3 COBRA and the Potential Effects ofkassebaum-kennedy The effects of the individual characteristics are in many ways similar to those estimated using the binary logit model. ncreases in age, income, and education significantly increase the probabilities of both former employer and spouse insurance relative to the probability of no coverage. Being female or married significantly raises the probability of other coverage relative to no coverage. The magnitudes of the effects vary across the two insurance choices. ncreases in age and income produce bigger effects on the relative probability of former employer coverage, being female produces a bigger effect on other coverage, and the effects for being married are almost identical for the two choices. POTENTAL EFFECTS OF KASSEBAUM-KENNEDY ON THE HEALTH NSURANCE COVERAGE OF THE UNEMPLOYED Even though the individual coverage provisions of Kassebaum-Kennedy only recently went into effect, we can still use our results here to simulate its effects on the health insurance of the unemployed. The number of individuals obtaining coverage under Kassebaum-Kennedy can be obtained by multiplying the number of eligible individuals by the rate at which individuals take up coverage. n our simulation, we use the April 1993 CPS data to estimate the number of eligible individuals, and we use our binary and multinomial parameter estimates to estimate the takeup rate. This gives us an estimate of how many more of the unemployed would have had health insurance coverage had Kassebaum-Kennedy been in effect in April n April 1993, there were 5.86 million experienced unemployed workers aged 25 to 64. Earlier we calculated that 45.1 percent of these unemployed workers had insurance through their previous job or currently had insurance through a previous employer. n Table 2 we saw that 51.8 percent of the unemployed were not eligible for COBRA or coverage through their spouse's insurance. Of these 51.8 percent, 42.8 percent were not formerly insured through their employer and thus were ineligible for COBRA. Another 1.6 percent were formerly insured by their employer, worked in a COBRAeligible firm, but were in an unemployment spell greater than 18 months and were therefore ineligible for COBRA. Others (1.5 percent) had coverage with their former employer but worked for a church employer or the federal government and were also ineligible for COBRA. Finally, another 5.9 percent had coverage from their former employer, but worked for a small firm and were ineligible for COBRA. Those eligible for Kassebaum-Kennedy at any point in time would be individuals who had coverage from their previous employer but were not eligible for COBRA either because they had been unemployed for too long, worked in a small firm, or in a sector not subject to the COBRA provisions. Further, they could not be eligible for coverage under a spouse's plan. n April 1993, this would correspond to 9.0 percent ( ) of the 51.8 percent of the unemployed who were ineligible for COBRA. The 49.2 percent of the unemployed who were eligible for COBRA or spouse coverage would have been ineligible for Kassebaum-Kennedy, as would the 42.8 percent of the unemployed who were not covered by their employer in the first place. The remaining 9.0 percent (527,000) of these individuals met the criteria for the Kassebaum-Kennedy individual coverage provisions. To estimate how many more of these 527,000 individuals would have been covered under Kassebaum-Kennedy, we use the estimates in Tables 6 and 8 for those who were eligible for COBRA only, given that this group most closely approximates the eligibility requirements for being able to choose coverage under the new legislation. We are thus assuming that the 9.0 percent of the unemployed who appear to have been eligible would have opted for Kassebaum-Kennedy at the same rates as those

16 444 / Health nsurance Coverage of the Unemployed: COBRA and the Potential Effects of Kassebaum-Kennedy Table 9. Mean characteristics of COBRA and Kassebaum-Kennedy eligibles. Variable 1 COBRA Kassebaum-Kennedy eligibles eligibles Female Age Children Married < High school Some college Associate's Bachelor's Graduate Black Other Disabled Spouse disabled Total income Number of observations Source: April 1993 Current Population Survey who were eligible only for COBRA in April The underlying identification assumption in this simulation is that the decision to use Kassebaum-Kennedy once an individual has used up 18 months of COBRA, or if the firm is not obligated to provide COBRA, will be determined in the same way as the decision to opt for COBRA by individuals who are eligible for COBRA and not spouse coverage. One way to gauge the reasonableness of the identification assumption is to look at the observable characteristics of the COBRA eligibles and compare them to those of the Kassebaum-Kennedy eligibles. Table 9 shows the mean values of the variables included in the logit models for the two groups. The differences in ages, number of kids, and proportion married between the two groups are very small. The COBRA sample is slightly less educated; has a higher proportion female, black, or disabled; and has higher income. However, overall the observable characteristics of the two groups do not look remarkably different. Our estimates suggest that 50,000 to 86,000 more individuals would have obtained coverage depending on the set of estimates used, meaning that the coverage rate for the experienced unemployed, which was percent, would have increased somewhere between 0.85 percent to 1.5 percent. The 86,000 (1.5 percent) estimate is based on the model that does not control for demographic characteristics (column of Table 5), while the 50,000 (0.85 percent) estimate uses the estimates that control for demographic characteristics [column (2) of Table 51. Our estimated effects in Table 8, which are based on the multinomial estimates, can be used to obtain more detail in the changes in coverage among the unemployed had Kassebaum-Kennedy been in effect in April Using the estimates without controls for demographic characteristics [columns (1) and (2) of Table 71, we estimate that 104,000 more individuals would have obtained insurance from their former

17 Health nsurance Coverage of the Unemployed: / 445 COBRA and the Potential Effcts of Kassebaum-Kennedy employer and 18,000 fewer individuals would have obtained coverage from other insurance, for a net gain of 86,000 insured individuals. Using the estimates that control for demographic characteristics (columns (3) and (4) of Table 7), we estimate that 87,000 more of the unemployed would have obtained insurance from their former employer and 38,000 fewer would have obtained coverage from another employer, for a net gain of 49,000 insured. Our estimates are far below the GAO [9951 estimate of 25 million individuals who would be affected by the Kassebaum-Kennedy legislation and are even below the 2 million individuals who the GAO estimates would take advantage of the individual coverage provisions of the legislation. What accounts for the large differences? First of all, the GAO estimates can best be interpreted as an annual estimate, while our estimates are for a point in time.13 Second, the GAO estimate covers dependents, not just the unemployed. To account for these two factors, we have adjusted the GAO estimate downward so that only workers are included, and have converted ours to an annual estimate using March 1994 CPS data [US. Bureau of the Census, on the number of unemployed at any time during After making these adjustments, the GAO estimate becomes million individuals, and our estimates are 177,000 and 304,000 individuals.14 The adjusted GAO estimate still exceeds our annual estimate mainly because it does not account for eligibility for a spouse's employer plan, which would eliminate the eligibility of many of the unemployed for Kassebaum-Kennedy and because the GAO estimate appears to overstate the number of individuals who would exhaust COBRA in any given time period. Thus, even after we convert our estimate to an annual figure and subtract dependents out of their estimate, the GAO still predicts greater use of Kassebaum-Kennedy by a factor of three to six. f the GAO estimates are accurate, the coverage rate among the unemployed would increase by 5.2 percent from 41.6 percent, compared to the estimated increases of 0.85 percent to 1.5 percent predicted by our analysis. This comparison illustrates that after a careful accounting of those eligible for Kassebaum- Kennedy, the potential effects are much lower than previously estimated. Our estimates rest on the assumption that those eligible for Kassebaum-Kennedy behave in a similar fashion to those eligible for COBRA and not for spouse-provided insurance.15 The individual coverage provisions of COBRA and Kassebaum-Kennedy are similar enough that we believe that this is a useful exercise. n fact, in the absence l3 The details behind the GAO [9951 estimate were obtained in a telephone conversation with John Dickens, one of the major contributors to their report, on 23 July l4 We adjust the GAO [9951 estimate in the following way. The first component (800,000) of the GAO estimate is the number of individuals covered by plans of workers at small firms who would take up Kassebaum-Kennedy. From Berger, Black, and Scott [1994, Table 4-El we estimate that 44 percent of those covered by firms with 25 or less workers are workers and 56 percent are dependents. We thus multiply 800,000 by 0.44 to obtain 352,000. The other component (1.2 million) of the GAO estimate is the number of individuals who would exhaust COBRA and take up Kassebaum-Kennedy. t is based in part on the analysis of Flynn [1994]. From Flynn we calculate that 40 percent of those using COBRA are dependents and widows, and 60 percent are beneficiaries insured through their former employer. We thus multiply the 1.2 million component by 0.6 to obtain 720,000, for a total of million individuals. We obtain our estimates by multiplying the total number of unemployed at any time in 1993 (20.7 million) that we calculated from the March 1994 CPS by 0.09 based on our previous analysis to obtain an estimate of the total eligible for Kassebaum-Kennedy (1 363 million). The number of eligibles is multiplied by and (Table 6) to obtain estimates of the annual number of unemployed who would take up Kassebaum- Kennedy (177,000 to 304,000). Although the methodology and data sources employed by the GAO El9951 are quite different than those employed here, the GAO estimates also rest in part on the assumption that those eligible for Kassebaum- Kennedy will behave similarly to those eligible for COBRA.