Recent efforts to reform the health insurance market have focused on

DataWatch Small Employers And The Health Insurance Market by Michael A. Morrisey, Gail A. Jensen, and Robert J. Morlock Abstract: In 1993 half of all small businesses (fewer than fifty workers) sponsored a health plan for their employees, up from 41 percent in 1989. While not as deep, the benefits offered by small firms are nearly as broad as benefits offered by large firms, and they have expanded since 1989. Small businesses pay more for coverage, however. Although coverage restrictions based on health status and preexisting conditions are a significant concern of small firms, actual limits of this type in the small-group market are modest. Firms not offering insurance report that they have wide access to coverage, and many would sponsor a plan if only prices were lower. Recent efforts to reform the health insurance market have focused on employers and their coverage of workers. It is more correct, however, to say that these efforts were targeted at small businesses, because a large percentage of the uninsured are associated with small businesses. Estimates from the March 1993 Current Population Survey (CPS) indicate that 37 percent of the uninsured work for a firm employing fewer than twenty-five workers that does not provide insurance, and 14 percent of the uninsured work for such a firm having twenty-five to ninety-nine workers. 1 Much about the market for health insurance among small firms remains poorly understood. The purpose of this DataWatch is to build on the existing literature and present findings from a new survey of small employers. Data and methods. The information presented here on the health benefits offered by small businesses comes from a survey we conducted in spring 1993. During April and May of that year, National Research, Inc., a survey research firm in Washington, D.C., conducted telephone interviews with 750 small businesses employing fewer than fifty workers. The sample of firms was drawn randomly from the Dun and Bradstreet list of the nation s private employers, after stratification by size and location. This list is representative of firms that have applied for a loan at some point and on which a credit check has been conducted. As such, it may underrepresent Michael Morrisey is professor and director of the Lister Hill Center for Health Policy at the University of Alabama at Birmingham. Gail Jensen is an associate professor at Wayne State University, Detroit, Michigan, with joint appointments in the Institute of Gerontology and the Department of Economics. Robert Morlock is a research assistant at the institute of Gerontology and a doctoral student in economics at Wayne State University.

150 HEALTH AFFAIRS Winter 1994 very young firms and some small sole proprietorships. 2 In all, 1,721 businesses were contacted, and 750 agreed to participate. This response rate of 44 percent is typical of small-business surveys. 3 To produce nationally representative estimates, we weighted responses by size and region in accordance with the probability of selection into the sample. Our focus here is on employers, although in some instances we present statistics on employees. The margin of error for estimates made from our 1993 survey is approximately plus or minus four percentage points. We also draw on data from the Health Insurance Association of America s (HIAA s) annual employer surveys conducted each spring, 1989-1992. We restrict our focus with these data to employers, other than units of government, that employed fewer than fifty workers at the time they were surveyed. There were 844 such firms in the 1989 survey; 763 in 1990; 1,250 in 1991; and 834 in 1992. In each of these years the HIAA drew its sample of private employers from Dun and Bradstreet s nationwide list of firms-the same sampling frame we used. We exploit these commonalties to examine the trend in coverage among small firms over the past five years. As with our 1993 data, we weight firms responses to these HIAA surveys to produce nationally representative estimates for each year that reflect the entire population of small firms with fewer than fifty workers. 4 Who Offers Coverage? Half (51 percent) of small businesses offered health insurance in 1993. This is strongly related to firm size (Exhibit 1). Among firms with twentyfive to forty-nine workers, 85 percent provided insurance coverage, a prevalence rate approaching that of medium and large employers. In contrast, firms with fewer than ten workers were more likely not to offer coverage; even among this group, however, 44 percent provided insurance. Thus, as earlier studies have found, mostly very small firms do not provide coverage. 5 Lack of coverage is also related to corporate status and location. Nearly twice as many incorporated firms as unincorporated firms provided health insurance coverage. Unincorporated firms accounted for 40 percent of all firms and 27 percent of all employers in our sampling frame. Small businesses in rural areas, which employ a third of all workers in small businesses nationwide, were less likely than small businesses in urban areas to offer coverage (43 percent versus 54 percent). Small-firm coverage declined between 1989 and 1991 but has increased steadily since then. At first this appears to be inconsistent with CPS data, which indicate the opposite. 6 Our results may not be inconsistent, however. First, in fall 1990 the economy slipped into recession and unemployment increased, largely because firms cut their work forces. 7 Firms that did so

D ATAWATCH 151 Exhibit 1 Percentage Of Small Firms Offering Health Benefits, 1989-1993 Sources: Authors tabulations of the HIAA Employer Surveys, 1989-1992, and the 1993 Wayne State University/ KPMG Peat Marwick Survey of Small Employers. Note: Percentages may not add to 100 because of rounding. a Data not available from the survey(s). would show up as smaller firms in our 1992 and 1993 samples. If they continued to offer health insurance after downsizing, then estimates of the percentage of small firms offering coverage in 1992 and 1993 would be higher, which is what we found. Second, it is important to understand the factors that underlie the trend in the CPS numbers. These factors would not suggest that fewer small firms are now offering health insurance. Since 1989 spells of unemployment and complete withdrawal from the labor force have become more common among the nonelderly population. 8 These changes in the labor market have contributed to an increase in the uninsured population but would not necessarily affect the proportion of small firms providing coverage. In addition, since 1989 the composition of the labor force has shifted more toward part-time workers, who are far less likely to receive employersponsored coverage. The U.S. Bureau of Labor Statistics reports that between 1989 and 1992 there was a loss of 639,000 full-time jobs in the U.S. economy. At the same time, there was an increase of 894,000 part-time jobs. 9 This trend alone can account for an increase of approximately 1.5

152 HEALTH AFFAIRS Minter 1994 million workers without health insurance between 1989 and 1992. Our data suggest that small firms are similar to other employers in terms of who is eligible for coverage. Among small firms that offered insurance benefits, 97 percent indicated that full-time employees were eligible. Most firms (85 percent) also covered workers dependents. However, only 19 percent of small firms provided coverage for part-time workers. Given the tendency of some states small-firm coverage demonstrations to exclude the owner of the firm from coverage, it is important to note that 80 percent of small firms covered the owner or owners of the business. If owners are excluded, the desirability of a plan is likely to be reduced significantly. What Sort Of Coverage Do Small Firms Provide? Most small businesses with insurance offer a single conventional health insurance plan. Nearly 60 percent offered this and nothing else (Exhibit 2). Health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service plans have made only limited inroads into small firms. Six percent of small firms that offered health insurance coverage offered an HMO exclusively. Another 10 percent offered a PPO only. The use of HMOs, PPOs, and point-of-service plans generally increases with firm size. However, only 2 percent of small employers offered more than one health insurance plan. Those small firms offering multiple plans almost without exception had twenty-five or more workers. The benefits provided by small firms are nearly as broad as those provided by large firms. Small firms plans tend to cover the same categories of care, for example. Respondents who knew what their health plan covers reported that 75 percent covered alcohol abuse treatment, 93 percent covered inpatient mental health care, and 81 percent covered outpatient mental health services. 10 Fifty-eight percent of conventional plans offered by small firms Exhibit 2 Options For Health Insurance In Small Firms, By Firm Size, 1993 Conventional only HMO only PPO only Point-of-service only Two or more plans Unknown plan type(s) Number of workers l - 9 10-24 55% 70% 6 7 10 8 3 3 1 1 25 12 25-49 All 56% 59% 6 6 10 10 13 4 14 2 2 20 Source: Authors tabulations of the 1993 Wayne State University/ KPMG Peat Marwick Survey of Small Employers. Notes: Percentages may not add to 100 because of rounding. HMO is health maintenance organization: PPO is preferred provider organization.

D ATAWATCH 153 covered well-baby care, and 53 percent covered routine physical exams, whereas in large firms conventional plans, coverage rates for these services were less than one-quarter. The services covered by conventional and PPO plans offered by small businesses have actually expanded slightly since 1989, but HMO benefits show slight shrinkage from 1989 levels. 11 The differences were not statistically significant. The similarity between coverage offered by large and small firms is consistent with the experience of states in offering bare-bones insurance coverage to small employers. 12 Small-firm plans require greater cost sharing than large-firm plans do. In conventional plans offered by small firms, for example, the average annual deductible in 1993 was $311 per individual and $694 per family, whereas in large firms ( 1,000 or more workers) it was $222 per individual and $498 per family. 13 The cost-sharing provisions of PPOs were also less generous in small firms: The average in-plan deductible per person in firms with fewer than fifty workers was $266, and the average out-of-plan deductible was $1,073, compared with $161 and $286, respectively, in large firms. Lifetime maximum benefits also tended to be somewhat lower in the smallest firms. Although their coverage is typically not as deep, small firms pay premiums close to those paid by large firms. For conventional plan coverage, for example, small firms paid $187 monthly per individual and $425 per family, on average, in 1993. Large firms paid $171 and $447, respectively. Even adjusting for the content of coverage, premiums were not significantly different. We compared premiums for plans that had the following characteristics: a deductible between $100 and $250 per individual, eighty/ twenty coinsurance, a stop-loss amount less than $2,000, a prescription drug benefit, and coverage for several special services, including inpatient and outpatient mental health care, alcohol and drug abuse treatment, and occupational therapy. Small firms with plans that fit this prototype paid $164 per individual and $405 per family, on average, compared with $172 and $429, respectively, in large firms. Premiums (around these averages) also did not vary much between small and large firms. 14 Why Do More Small Firms Not Offer Coverage? We asked those small firms that did not provide health insurance why they did not. Exhibit 3 reports their responses. Not surprisingly, the most common answer was that premiums were too high. 15 Firms with twenty-five to forty-nine workers that did not offer insurance were especially likely to give this as an important reason. However, the other answers provide more insight as to why the coverage was not perceived to be worth the premium. We have grouped small firms responses into three related issues. First is fear of having to take away coverage in the future. Some 56 percent of

154 HEALTH AFFAIRS Winter 1994 Exhibit 3 Why Small Firms Say They Do Not Offer Health Insurance Source: Wayne State University/ KPMG Peat Marwick Survey of Small Employers. respondents that did not offer coverage said that this was a very important or somewhat important concern. However, nearly 80 percent expressed concern that the firm s profits were too variable, and three-quarters said that premium increases were too uncertain. Second, health benefits are not a high priority among some workers. Nearly 60 percent of responding firms indicated that they do not have to offer insurance benefits to attract workers. Fifty-four percent indicated that workers prefer higher wages, and a nearly identical percentage reported that workers were already covered. One-third of respondents said that employee turnover is too high to warrant providing coverage. Third, just over half of the small firms not offering coverage (especially those with fewer than ten workers) cited administrative hassles and inability to qualify for group rates as prime concerns. Some 17 percent of firms not now offering coverage offered it at some time in the past but no longer do so. Sixty percent of these have done this since 1990. Two-thirds of firms that have dropped coverage blamed their action on substantially higher insurance premiums. Still, 45 percent of small firms that dropped coverage indicated that most of their workers were covered elsewhere, and 28 percent said that their workers preferred higher

D ATAWATCH 155 wages to more expensive health insurance. Only 9 percent reported that their insurer would not renew their policy. Would Small Firms Offer Coverage If The Price Were Lower? Not surprisingly, the answer to whether small firms would offer insurance if the price were lower depends upon the price. We asked small firms that did not offer health insurance what market scenarios would lead them to begin offering coverage to their workers. We described an insurance plan to these firms and offered it at various hypothetical prices. The plan had broad conventional coverage with cost-sharing provisions similar to what one might find in a large firm. We told respondents that the plan would cover all categories of care, would allow workers to choose any physician, and would entail a $250 annual deductible per person. Forty percent of small firms not now providing benefits said that they would offer this policy to their workers if it could be purchased for $175 per worker per month. If the monthly premium were 15 percent lower ($149), 53 percent would purchase the plan, and if it were 50 percent lower ($88), 75 percent would purchase it. Overall, this implies a premium elasticity of -0.92. This elasticity is well below that found in econometric studies of insurance demand. Other researchers have found that a 5 percent increase in price resulted in a 10 to 15 percent decrease in the likelihood of purchase; that a 5 percent decrease in the tax subsidy for health insurance would decrease the proportion of firms offering insurance by about 15 percent; and that a 5 percent increase in premiums would reduce the proportion of small firms sponsoring an insurance plan by 13 percent. 16 On the other hand, these findings are much greater than those implied by the evaluations of state subsidy programs for small businesses. 17 The findings of these demonstration projects, however, may be biased downward relative to a more general small-firm subsidy for health insurance. It has been observed that small-business owners had little knowledge of the plans in the demonstrations, the subsidies were available for only a limited time period, and, in some instances, owners were not eligible for coverage. Our survey data on a variety of state initiatives indicate that no more than 9 percent of small employers in states with such initiatives were aware of them. Further, as noted above, there was a fear that health benefits might have to be withdrawn. If such a fear is sincere, an eighteen-month subsidy may not be sufficient to induce many firms to sponsor insurance coverage. Is Health Insurance Available To Small Firms? The previous discussion presumes that small employers can find health

156 HEALTH AFFAIRS Winter 1994 insurance. It also suggests that small employers would be willing to change health plans if they could find plans that offered better service and/ or lower premiums. To address these issues, we asked currently insured and uninsured small firms how often they had been solicited to purchase health insurance in the past six months and whether they had followed up on any of these solicitations. More than 75 percent of both insured and uninsured small firms were solicited for health insurance in the past six months, and more than one-third indicated that they received six or more inquiries. This is consistent with case study work by Catherine McLaughlin, who also found numerous sellers of insurance in the small-group market. Thus, it would appear that small firms, for the most part, have ample opportunity to obtain coverage or change carriers. Simple regressions on the number of solicitations by firm characteristics found few statistically significant differences between firms that were solicited and firms that were not. Forty percent of currently insured firms and 22 percent of uninsured firms indicated that they recently had followed up with one or more of these insurance solicitations. Further, at renewal time, one-third of insured small firms reported that they had talked to more than one health insurance agent. Given the interest in purchasing cooperatives and health alliances in recent health care reform proposals, we asked small firms whether they had investigated the option of purchasing health insurance through a local business association, trade group, employer coalition, or some other group of small purchasers. Fifty-nine percent of those providing health insurance said that they had done so. However, only 17 percent indicated that their current plan was part of such an organization. Are Health Status And Preexisting Conditions Major Issues? We asked small employers that have maintained coverage with a given carrier for two or more years why they have done so: Is it because you fear that the current health conditions of some employees or their dependents would not be covered by a new carrier? Nearly one-third of respondents (32 percent) indicated yes to this query; 64 percent said no. The remaining 4 percent did not know. Clearly, a sizable number of insured small firms are concerned about the coverage implications of changing carriers. McLaughlin reported that many insurers are unwilling to cover groups with fewer than ten workers and that many exclude specific industries and impose preexisting condition clauses. Wendy Zellers and colleagues reported that two-thirds of the insurance firms they surveyed excluded some industries.1 9 Indeed, for these reasons state governments have passed legislation limiting medical underwriting, providing for guaranteed issue, and limiting or eliminating preexisting condition clauses. 20

D ATAWATCH 157 However, the actual extent of coverage exclusion or denial appears to be much smaller (Exhibit 4). Among firms not offering health insurance coverage, 39 percent said that their inability to qualify for an insurance contract at employer rates was a very important factor in not providing coverage. Another 15 percent said that this was a somewhat important factor. Inability to qualify can stem from a variety of factors. Of those who cited this as a somewhat or very important reason for not offering coverage, we asked if this was because one or more employees cannot qualify for insurance because of health conditions. More than three-quarters (77 percent) answered no; only 18 percent said yes. Inability to qualify also may relate to the risk classification associated with a particular firm or industry. This too may be related to the real or perceived health status of the firm s workers. However, only 14 percent of those blaming inability to qualify indicated that the type of business or industry they are in makes them ineligible. Further, as noted earlier, 17 percent of those not now offering coverage said that they provided it before but no longer do. Of these firms, 60 percent dropped their plan since 1990. When asked if an insurer s refusal to renew was a reason for dropping coverage, only 9 percent indicated that it was. Only 3 percent indicated that the inability of one or more employees to qualify was a reason. A second health-related reason for not changing health insurance carriers has to do with waiting periods and preexisting condition clauses. Only 20 percent of small firms reported that full-time employees are immediately eligible for coverage (Exhibit 5). However, most contracts (74 percent) Exhibit 4 Problems Qualifying For Insurance Among Firms Not Offering Health Insurance, 1993 Among firms Importance of inability to qualify for an insurance contract at employer rates as a reason for not offering health insurance Very important 39% 33% Somewhat important 15 16 Not too important 12 15 Not at all important 18 23 Don t know 15 14 Reasons given among firms that say they are unable to qualify for employer rates Firms too newly established 16 12 Type of business makes firm ineligible 14 9 Some workers health conditions disoualify firm 18 19 Among workers Source: Authors tabulations of the 1993 Wayne State University/ KPMG Peat Marwick Survey of Small Employers.

158 HEALTH AFFAIRS Winter 1994 Exhibit 5 Waiting Periods, Preexisting Conditions, And Exclusions From Coverage Among Small Firms Providing Insurance, 1993 Source: Authors tabulations of the 1993 Wayne State University/ KPMG Peat Marwick Survey of Small Employ ers. Note: HMO is health maintenance organization; PPO is preferred provider organization. allow eligibility by the end of three months of employment. These waiting times are comparable to those set by large firms. 21 A few small firms indicated that some of their workers or dependents were considered ineligible for insurance coverage because of poor health. However, this situation is rare; 88 percent said that all of their workers (and their dependents) were eligible for coverage. Conventional insurance plans, followed by point-of-service and PPO plans, were the most likely to exclude particular workers or dependents from coverage. Finally, preexisting health condition clauses are very common; however, virtually all are for one year or less, and more than half of the workers in insuring small firms have either no restrictions or limits of one to three months. These provisions also are comparable to preexisting condition clauses in very large firms; they are certainly no more restrictive. 22

D ATAWATCH 159 Conclusions The small-group health insurance market is complex. From our 1993 survey of firms with fewer than fifty workers, we draw seven conclusions. (1) Many small employers do offer health insurance (51 percent, on average). More importantly, the prevalence rises sharply with firm size. A firm with twenty-five or more workers has a better than eight in ten chance of providing health insurance to its workers. Corporate status also is related to whether a small business provides coverage. If a firm is incorporated, the chances are about six in ten that it provides insurance. (2) The coverage offered by small employers is similar to that offered by larger employers. The benefits are relatively broad but are not as deep as benefits in larger firms tend to be. Lifetime maximum benefits tend to be consistently lower in small firms. Small firms tend to pay premiums equivalent to those paid by larger firms but face greater cost sharing. (3) Managed care has made inroads into the small-group market: Nearly 25 percent of small firms offer such a plan. However, only 2 percent offer a choice of health plans. To the extent that managed care plans promote cost- effective use of medical services, they do limit claims costs. Further, the deductibles in small firms conventional insurance plans are higher. This, too, tends to reduce the use of medical services. (4) Firms that do not offer coverage tend not to do so for three reasons: They fear that they will have to take benefits away in the future; they perceive health insurance as not being a high priority; and they perceive health insurance coverage as presenting significant administrative hassles. (5) Small firms are price-sensitive with respect to health insurance. A 10 percent reduction in premiums, based upon our survey, should lead to a 10 percent increase in insurance provision. However, given small firms fear of having to take back coverage, it is likely that any subsidies would have to be of long-term duration. (6) Health insurance is widely available to small firms. They are routinely approached by health insurance agents, and they often follow up on these solicitations. A majority of small firms have investigated employer cooperatives, trade associations, or employer coalitions as sources of health insurance. However, only 17 percent obtain their insurance through such a group. (7) There is a significant fear that healthrelated eligibility conditions and preexisting conditions will prevent a firm from changing its insurance plan. However, the actual extent of these limitations is rather modest. In the small-group market the typical preexisting condition clause is well under one year, and few firms report that workers or dependents have been denied coverage because of poor health. Even fewer report that they have been denied group coverage because of the poor health status of one or more of their workers or dependents.

160 HEALTH AFFAIRS Winter 1994 Some care must be exercised with respect to this and all surveys that solicit responses to hypothetical questions. What one imagines one would do and what one actually does may be quite different. Further, small firms may not be fully informed as to the details of their coverage and the nature of the local insurance market. Nonetheless, the survey provides insight into the current state of insurance among small employers. The authors gratefully acknowledge financial support from The Robert Wood Johnson Foundation under Grunt no. 21471. NOTES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Employee Benefit Research Institute, Sources of Health Insurance and Characteristics of the Uninsured, Issue Brief no. 145 (Washington: EBRI, January 1994). S. Malhotra et al., Employment Related Health Benefits in Private Nonfarm Business Establishments in the United States, Vol. II: Sampling and Survey Strategy, Final Report prepared for the U.S. Department of Labor (Seattle: Battelle Human Affairs Research Centers, 1980). Our response rate is higher than those obtained in earlier employee benefit surveys. W. Dennis, Small Business Employee Benefits (Washington: National Federation of Independent Business [NFIB] Foundation, 1985); C. Hall and J. Kuder, Small Business and Health care: Results of a Survey (Washington: NFIB Foundation, 1990); ICF Inc., Health Care Coverage and Costs in Small and Large Businesses, Final Report prepared for the U.S. Small Business Administration (Washington: ICF Inc., 1987); R. Feldman et al., The Effect of HMOs on Premiums in Employment-Based Health Plans, Health Services Research 27 (1993): 779-812; and J.C. Cantor et al., Business Leaders Views on American Health Care, Health Affairs (Spring 1991): 98-105. For more detailed information on these surveys, see C. Sullivan et al., Technical Methodology: HIAA Survey of Employer-Sponsored Health Benefit Plans (Washington: Health Insurance Association of America, February 1990). Hall and Kuder, Small Business and Health Care; and W.D. Helms, A.K. Gauthier, and D.M. Campion, Mending the Flaws in the Small-Group Market, Health Affairs (Summer 1992): 7-27. The most recent year for which CPS data are available is 1992. For CPS-based statistics on the uninsured, see EBRI, Sources of Health Insurance. Downsizing of firms during recessions is well documented, although data for the most recent recession are sparse. For data on the 1981-1982 recession, see Small Business Administration, The State of Small Business, 1985 (Washington: U.S. GPO, 1985). EBRI, Uninsured in the United States, Special Report 8 (Washington: EBRI, September 1990), 22; and EBRI, Sources of Health Insurance, 27. P. Rones, Division of Labor Force Statistics, U.S. Bureau of Labor Statistics, personal communication, 20 December 1993. In 1989, among firms of 1,000 or more, the percentage of conventional plan enrollees with coverage for alcohol abuse treatment, inpatient mental health care, and outpatient mental health care was 96, 99, and 99, respectively. Data for 1991 from the BLS indicate that, among firms of 100 or more, 96 percent of participants had drug coverage. J. Gabel et al., Employer-Sponsored Health Insurance, 1989, Health Affairs (Fall 1990): 161-175; and Bureau of Labor Statistics, Employee Benefits in Medium and Large Size Private Establishments, 1991, Bulletin 2422 (Washington: U.S. GPO, 1992).

D ATAWATCH 161 11. In 1991, 16 percent of persons in non-hmo plans offered by private firms with 100 or more workers had coverage for routine exams, and 24 percent had coverage for well-baby care. See BLS, Employee Benefits in Medium and Large Size Private Establishments, 1991. 12. Families USA, No Sale: The Failure of Barebones Insurance (Washington: Families USA, July 1993), 8; and Z. Dyckman and J. Bumette, Programs to Improve Health Insurance Access for Small Business-What Works and What Doesn t, Report to the Small Business Administration (Columbia, Md.: Center for Health Policy Studies, March 1992), v. 13. J. Gabel et al., The Health Insurance Picture in 1993: Some Rare Good News, Health Affairs (Spring I 1994): 327-336. 14. Comparing prototype plans, the standard deviation in the price of individual coverage was 56 among small firms and 51 among large firms. For the price of family coverage, the standard deviation was 106 among small firms and 127 among large firms. 15. See Helms et al., Mending the Flaws in the Small-Group Market; C.G. McLaughlin and W.K. Zellers, The Shortcomings of Voluntarism in the Small-Group Insurance Market, Health Affairs (Summer 1992): 28-40; and C.G. McLaughlin, The Dilemma of Affordability: Private Health Insurance for Small Businesses, in American Health Policy: Critical Issues for Reform, ed. R. Helms (Washington: AEI Press, 1993), 133-151. 16. C.E. Phelps, The Demand for Health Insurance: A Theoretical and Empirical Investigation, Report R-1054-OEO (Santa Monica, Calif.: The RAND Corporation, 1973); G.S. Goldstein and M.V. Pauly, Group Health Insurance as a Local Public Good, in The Role of Health Insurance in the Health Services Sector, ed. R. Rosett (Cambridge, Mass.: National Bureau of Economic Research, 1976), 73-109; G.A. Jensen, Employer Choice of Health Insurance Benefits (Doctoral dissertation, University of Minnesota, Minneapolis, Minnesota, 1986); A. Leibowitz and M. Chemew, The Firms Demand for Health Insurance, in Health Benefits and the Workplace (Washington: U.S. Department of Labor, 1992), 77-84; G.A. Jensen and J.R. Gabel, State Mandated Benefits and a Firm s Decision to Offer Insurance, Journal of Regulatory Economics 4 (1992): 379-404; and M.A. Morrisey and G.A. Jensen, State Small Group Insurance Reform (Paper presented at the University of Illinois conference, Health Care Reform and the Role of the States, Chicago, Illinois, 29 April 1994). 17. K.E. Thorpe et al., Reducing the Number of Uninsured by Subsidizing Employment- Based Health Insurance: Results from a Pilot Study, Journal of the American Medical Association (19 February 1992): 945-948; N.L. Barrand and W.D. Helms, Testimony before the Subcommittee on Health, Committee on Ways and Means, United States House of Representatives (Princeton, N.J.: The Robert Wood Johnson Foundation, 1991); Helms et al., Mending the Flaws in the Small-Group Market; and McLaughlin and Zellers, The Shortcomings of Voluntarism in the Small-Group Market. 18. McLaughlin, The Dilemma of Affordability. 19. Ibid; and W.K. Zellers, C.G. McLaughlin, and K.D. Frick, Small-Business Health Insurance: Only the Healthy Need Apply, Health Affairs (Spring 1992): 174-180. 20. See U.S. General Accounting Office, Access to Health Insurance: State Efforts to Assist Small Businesses, GAO/ I-IRD-92-90 (Washington: GAO, May 1992); J. Casey, More States Enact Small Group Reform in 1993 with a Popular New Feature: Purchasing Pools, Health Benefits Letter (8 March 1994): 3-8; and Morrisey and Jensen, State Small Group Insurance Reform. 21. Within medium and large private firms in 1991, 40 percent of workers were immediately eligible for health insurance, and 3 1 percent had to be on the job for one to three months. See BLS, Employee Benefits in Medium and Large Size Private Firms, 1991, 64. 22. Of conventional health insurance plans in firms with 1,000 or more workers, 36 percent have no restrictions on preexisting conditions, and in plans with restrictions the average period is 9.3 months. See Gabel et al., The Health Insurance Picture in 1993.