The Effect of Small Group Employer Plan Terminations on Health Insurance Coverage

• In Event: Administrative Frictions in US Health Insurance: Evidence on Coverage Loss, Claim Denials, and Eligibility Churn

Abstract

Most working-age Americans obtain health insurance through an employer. Today, roughly 30% of small firms offer health insurance to their employees compared to over 40% in 2002. Despite the scale of this disruption, little is known about where displaced enrollees land, how much coverage loss results, and the implications for their health care costs and access. This paper estimates the effect of a small group employer plan termination on subsequent coverage outcomes.

We used the Colorado All-Payer Claims Database (APCD) from 2020 through 2023, which captures enrollment in ESI, individual market, Medicaid, and Medicare across the state. We identified 6,314 small group employers that exited the fully insured market between January 2021 and December 2022, along with 15,185 small group employers that remained in the market as controls. We constructed a balanced 24-month panel of 30,614 treated members and 109,948 untreated members, tracking each person from 12 months before through 12 months after the termination month. We estimated stacked difference-in-differences models, where each treatment cohort was matched with controls based on the month of termination. Models included cohort-composite and termination-group-by-time fixed effects, clustering standard errors at the employer level. Our outcomes are monthly indicators for enrollment in the prior employer’s plan, other ESI coverage, the individual market, Medicaid, Medicare, and having no observed health insurance in a given month (and for at least three consecutive months). No observed health insurance could include true uninsurance, self-insured ESI not included in the APCD, or out-of-state-based health insurance. Future analyses will quantify changes in total costs and access across coverage transitions.Plan terminations produced a large and persistent increase in the share of members with no observed health insurance. In the month after termination, 47.2 percentage points (pp) more treated members had no observed coverage relative to controls (p<0.01). These gaps narrowed only modestly over the following year. Among those who remained covered, 12.3 pp moved to other ESI, 4.4 pp to the individual market, 0.7 pp to Medicaid, and 0.3 pp to Medicare. Effects were sharper for December terminations, consistent with plan-year-end terminations. Heterogeneity analyses revealed substantial differences across groups. Enrollees age 65+  often transitioned to Medicare (5.8 pp), and were least likely to have no observed health insurance. Children were the most likely to enroll in Medicaid (1.2 pp). Transitions to the individual market were concentrated among enrollees age 51–64 (8.6 pp).

A small group employer plan termination results likely results in sustained losses of health insurance for many affected workers and dependents. Among those findings alternative observed health insurance sources, ESI was most common followed by the individual market, as well as transitions to other ESI, the individual market, Medicaid, and Medicare, depending on individual characteristics. These findings suggest that small group market instability may be an important source of coverage disruption and that other market segments, while limiting uninsurance, may not fully substitute for ESI coverage in the intermediate term.

Author

• Mark Katz Meiselbach, Johns Hopkins University
  Presenting Author