THE EFFECT OF PREMIUMS ON THE SMALL FIRMS DECISION TO OFFER HEALTH-INSURANCE

Many small firms (fewer than 50 employees) do not offer health insuran ce. We investigated the role of premiums in the small firm's decision to offer health insurance, using data from a 1993 survey of 2,000 smal l firms in Minnesota. Selectively-corrected equations were estimated t o predict the premiums faced by firms offering and not offering insura nce. The elasticity of demand for health insurance, calculated at the mean of the data, was -3.91 for single coverage and -5.82 for family c overage. We contrast these results to the much lower responsiveness fo und in experimental studies and suggest that our findings ave more lik ely to model the small firm's demand for health insurance.