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April, 1987, Vol. 110, No. 4

Health insurance loss:
the case of the displaced worker

Michael Podgursky and Paul Swaim

Increased import penetration, new automation technologies, and structural changes in industry have focused attention on labor market problems faced by dislocated workers in the United States. These concerns have stimulated research on the extent of the displacement problem, the adjustment cost for workers whose jobs are eliminated, and labor market policies to help these workers secure new work.¹ In this article, we examine one potentially serious problem faced by many displaced workers—the loss of employer-sponsored group health insurance benefits as a result of job displacement.

For most Americans who are covered by private medical insurance, coverage is a fringe benefit of their job, or the job of another family member. A special Labor Department survey in 1979 showed that 73 percent of full-time wage and salary workers in the private sector and 83 percent of workers in the public sector were covered by group health insurance on their job.² In the majority of cases, benefit premiums are paid by the employer. Even when employees make a contribution, their share is usually a small fraction of the total premium. When a worker's job is terminated, however, this employer-paid insurance quickly terminates as well, usually within 30 to 60 days after layoff.³

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1 For example, see Paul O. Flaim and Ellen Sehgal, "Displaced workers of 1979-83; how have they fared?" Monthly Labor Review, June 1985, pp. 3-16; Richard M. Devens, Jr., "Displaced workers; one year later," Monthly Labor Review, July 1986, pp. 40-43. For a thorough survey of recent research on displaced workers, see U.S. Congress, Office of Technology Assessment, Technology and Structural Unemployment: Reemployment of Displaced Adults, OTA-ITE-250 (Washington, U.S. Government Printing Office, February 1986).

2 U.S. Department of Labor, Labor-Management Services Administration, Group Health Insurance Coverage of Private Full-Time Wage and Salary Workers, 1979 (Washington, 1981), pp. 30 and 51.

3 Health and Life Insurance Benefit Plans, Personnel Policies Forum Survey, 137 (Washington, Bureau of National Affairs, March 1984), pp. 21-22; and Daniel N. Price, "Health Benefits for Laidoff Workers," Social Security Bulletin, February 1976, pp. 40-51.

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