The Small Firms Hypothesis and the Percent of U.S. Society without Health Insurance: An Investigation Using Alternative Means Tests

The objective of this study is to proffer and then empirically investigate for the U.S. what is being identified as the “small firms hypothesis,” i.e., a hypothesis that the greater the percentage of firms that are “small,” the greater the percentage of the population that will be without health insurance. This is based on the premises that smaller firms face bargaining-power, financial, and competitive constraints that tend to limit their ability to provide group health insurance benefits to their employees, with the result being that employees at smaller firms are relatively more likely than employees at larger firms to be without a health insurance fringe benefit. The empirical analysis in the study adopts the percentage of private firms with 20 or fewer employees as the measure of “small firms.” A second objective of this study is to ascertain whether the strength (robustness) of the findings on behalf of the small firms hypothesis is sensitive to alternative measure(s) of family purchasing power or family economic status. Accordingly, eight different estimations are undertaken, each one adopting a different specification for measuring family economic status. The cross-section analysis provides strong empirical support for the “small firms hypothesis” across all of the specifications for family economic status.