Most private health insurance in the US is provided as a benefit of employment. One
explanation for this phenomenon is that employer contributions to health insurance premiums are
not taxed as income to the worker. It is somewhat puzzling, then, that a substantial fraction of
workers contribute to their premiums, since these contributions are frequently made out of after-tax
dollars. In this paper l examine the possibility that firms use employee contributions to distinguish
between workers who do and do not want health insurance, in order to compensate them more
efficiently when recruiting additional workers is costly. This model has clear predictions for the
relationship between worker demand for health insurance and (l) the probability that health
insurance is offered; (2) the probability that an employee contribution is required; (3) the
probability that the firm establishes a Flexible Spending Account that allows the employee
contribution to be made pre-tax; and (4) the employee’s share of the premium when a contribution
is required. l test these predictions using data from the 1993 Robert Wood Johnson Foundation
Survey of Employers. Using worker age as a proxy for health insurance demand, I find results that
are generally consistent with the predictions of the model. However, the fraction of workers who
are female, which should also be related to demand for health insurance, does not exhibit a
consistent relationship with health insurance offering and contribution requirements, so that
overall the evidence on this hypothesis is mixed I conclude that while imperfect worker sorting
on the basis of demand for health insurance does not explain all employee contributions, it may
play a significant role in explaining why firms require contributions.

We examine whether the decline in the availability of employer-provided
health insurance is a phenomenon common to all jobs or is concentrated only on certain
jobs. In particular, we investigate the extent to which employers have continued to
provide health insurance on what we term “core” jobs while reducing the availability of
health insurance on “peripheral” jobs. We consider two dimensions on which jobs may
be considered peripheral: if they are new (tenure less than one year) or part-time. We
consider three outcomes whose product is the health insurance coverage rate: 1) the
fraction of worker who are in firms that offer health insurance to at least some workers
(the offer rate); 2) the fraction of workers who are eligible for health insurance,
conditional on being in a firm where it is offered (the eligibility rate); and 3) the fraction
of workers who enroll in health insurance when they are eligible for it (the takeup rate).
We find that declines in own-employer insurance coverage over the 1988-1997 period are
driven primarily by declines in takeup for core workers and declines in eligibility for
peripheral workers. We also look at trends by workers’ education level, and see how
much of the decline in is offset by an increase in coverage through a spouse’s policy. Our
findings are consistent with the view that employers are continuing to make health
insurance available to their core long-term, full-time employees but are restricting access
to health insurance by their peripheral short-term and part-time employees.