Gaps in employer coverage: lack of supply or lack of demand?

According to data from the May 1988 Current Population Survey, 18 percent of workers are in firms that do not offer health insurance. The question explored here is whether the absence of insurance in these firms is related to lack of supply (that is, a failure of the firm to offer the benefit because the price it faces is too high or the benefit too low) or lack of demand (that is, employees in these firms would not purchase the insurance even if it were offered). Characteristics hypothesized to affect the supply of insurance by firms (size, rate of turnover, and union status) are found to distinguish whether or not firms offer insurance. The data show near-universal acceptance of group insurance among employees offered the opportunity to participate. Both of these factors suggest a failure of supply. However, employees in firms that do not offer insurance are young, low-wage earners who work part time. These are also characteristics of workers who do not purchase group insurance even when it is offered, suggesting that many of the workers who are not offered group insurance would not participate in a plan even if the supply failure were corrected. These findings have implications for the effectiveness of voluntary strategies to improve access, but they also raise concern over the fairness to workers of mandates requiring that they purchase coverage.