The number of Americans who receive health insurance through an employer-based health plan is declining as the cost of health insurance premiums rise. This decline is affecting middle-income workers as much as low-income workers. In fact, between 1999 and 2002, the share of workers with employer-sponsored insurance (ESI) dropped 3 percent for both low-income and middle-income employees. In this paper, the authors examine the factors that are driving this downward trend and assess employees' insurance options in the absence of ESI coverage.

Data were obtained from the 1999 and 2002 rounds of the National Survey of America's Families (NSAF) supplemented with data on ESI premiums from the Medical Expenditure Panel Survey, as well as other state and county-level sources. The study found the reason for the drop in ESI coverage among low-income workers was split, fairly evenly, between drops in their own ESI coverage and obtaining ESI coverage through other family members. For these workers, the drop in ESI coverage was offset by an increase in public coverage, leaving the numbers of uninsured about the same. In contrast, the drop in ESI coverage for middle-income workers was a result of a significant reduction in their own ESI coverage offset by a small increase in coverage by a family member. The numbers of uninsured in this group grew faster than in the low-income group because of the lack of alternative insurance options. The drop in ESI offers from employers was driven largely by changes in the nature of workers' jobs with many employees working in smaller firms, while the drop in ESI take-up was driven largely by rising ESI premiums and the financial contributions workers were expected to make to those premiums. Policies that shore up the ESI system are important for both low- and middle-income workers.