May 2003     Vol. 4, no. 5

Health-related insurance for the self-employed

Ernest B. Akyeampong and Deborah Sussman

One interesting development in the labour market in the 1990s was the rapid growth of self-employment relative to paid employment. According to the Labour Force Survey, between 1990 and 1997, self-employment accounted for almost 75% of total net job growth. Although the pace of growth slowed thereafter, self-employment constituted 16% of total employment in 2000, up from 14% in 1990. An overwhelming majority of the newly self-employed were entrepreneurs working on their own without any paid help—often referred to as the own-account self-employed (Lin, Yates and Picot 1999).

Many factors drive people to become self-employed (Statistics Canada 1998). On the one hand, people may feel forced into this arrangement because no other work is available—the push theory. On the other hand, they may be attracted by features self-employment can offer—the pull theory—for example, the independence of being one's own boss or the ability to work flexible hours or from home. Whatever the motivation, self-employment carries some risks—lack of income security is often cited as a major one. The Survey of Self-employment (SSE) shows that the risk of having few or no non-wage benefits is also very real (see Data sources and definitions). Indeed, approximately 7% of the self-employed cited this drawback as the most disliked aspect of their situation (Delage 2002).

Unlike employees, many of whom are covered by employer-sponsored extended health, dental, or disability insurance plans (Akyeampong 2002), the self-employed can only acquire such coverage through three main avenues: direct purchase (often at considerable cost), using their own financial resources; piggybacking on a spouse's or other close family member's plan; or other means such as membership in an association, a second paid job, or a franchising arrangement. These sources are also open to employees not covered by employer-sponsored plans. The Survey of Labour and Income Dynamics shows that in the year 2000, approximately 50% of employees had coverage in all three plans through employer-sponsored programs alone (Marshall 2003b)—almost three times the proportion (17%) of self-employed with similar coverage through one or more of the three sources listed above.  1 

Non-coverage in any or all of these health-related insurance plans can jeopardize the financial security of any worker and their dependants, but for the self-employed the damage can be more serious. For example, while many uninsured employees qualify for Employment Insurance (EI) sickness and maternity benefits, the self-employed do not. In 2000, employees entitled to EI maternity benefits took longer to return to work following childbirth (six months on average) than their self-employed counterparts (one month on average) (Marshall 2003a). Similarly, while a sick or disabled employee could lose some or all of their employment income, their self-employed counterpart could lose not only income but the business as well.  2  Indeed, 22% of the self-employed cited uncertainty and insecurity as the most disliked aspect of self-employment, and another 12% cited income fluctuations and cash flow problems.  3 

Using the SSE, this article expands on an earlier study on coverage rates and sources among the self-employed with respect to extended health, dental, and disability insurance plans (Delage 2002). It also examines reasons for non-coverage. Particular attention is paid to those with full coverage (all three plans) and those without coverage in any plan.

Four in 10 had no insurance coverage whatsoever; 1 in 6 had full coverage

In 2000, a sizeable proportion (41%, or 844,000 of the nearly 2.1 million self-employed Canadians) had no coverage in any of the three health-related insurance plans (Chart A). About 42% had coverage in an extended health insurance plan. Rates for the remaining two plans were lower: 38% for disability and 35% for dental.  4  Only 17% (348,000) had coverage in all three plans (Chart B). An additional 22% (460,000) were covered by two plans, and the remaining 21% (427,000) by only one plan.

Those with coverage in only one plan most commonly purchased disability—slightly more than two-thirds (294,000) (Chart B). The reasons are not surprising. Of the three plans, disability is perhaps the one for which non-coverage carries the heaviest financial consequences, especially if the disability is long-lasting or permanent. Also, Canada has a fairly comprehensive medicare program, and dental care programs are probably relatively less used. These factors contribute to making disability coverage a more attractive choice when affordability is an issue.

For those with coverage in two plans, the most popular combination was health and dental (about 315,000 self-employed workers), with many benefiting through extended spousal or family coverage.

Spousal membership in plan most important coverage source

In the SSE, the self-employed were asked about sources of coverage for health and dental plans, but not disability plans. Health and dental plans, unlike disability plans, can often extend coverage to the self-employed through the plan of a spouse or close relative. The usual way for the self-employed to acquire disability coverage is through direct purchase or membership in an association.

For the insured self-employed, coverage source patterns for health and dental plans did not differ greatly. For both types of plans, the most common source was coverage through the plan of a spouse or close relative—about 44% in extended health plans and 53% in dental plans (Table 1). Direct purchase through own resources was the second major source. More than one-quarter of the insured self-employed (27%) purchased coverage for health and one-fifth (21%) for dental. Purchasing a plan through an association membership (for example, university alumni) was cited as the third major source—about 1 in 6 (16%) for health plans and 1 in 7 (14%) for dental plans. For both plans, another 1 in 20 (5%) obtained coverage through a second paid job. Only a handful obtained coverage through franchising arrangements (such as holding a McDonald's franchise).

Lack of money major reason for non-coverage

Approximately 1.2 million (58%) self-employed reported having no extended health insurance coverage in 2000. The levels were slightly higher for dental care (1.4 million or 65%) and for disability (1.3 million or 62%).

As with coverage sources, the ranking of reasons for non-coverage was fairly similar for the three insurance plans. The most common was affordability, cited for each plan by approximately 40% of the non-insured self-employed (Table 1). Second was the belief that the coverage premium did not command good value. About one-quarter cited this reason for health and dental, with a slightly lower proportion (17%) for disability. The lower percentage for disability is in line with the hypothesis that non-coverage in disability insurance potentially carries the most serious financial consequences. Approximately one-fifth of the non-insured in each plan had 'not thought about it.' The remaining 15% to 20% had either kept putting off a purchase, been disqualified (disability plans only), or believed that they simply did not need coverage.

Business income goes hand in hand with full coverage

As would be expected, business income appears to be a major determinant of full coverage—that is, the odds of full coverage increased with income. In 2000, the self-employed with income of $60,000 or more were almost 5 times as likely as those with less than $20,000 to have coverage in all three plans (36% versus 8%) (Table 2). A reverse picture was painted for nil coverage; only 24% of the highest income self-employed workers had no coverage, about half the rate (48%) for the lowest income group. Indeed, of the various socio-demographic groups analyzed, the group earning business income of $60,000 or more was the only one for whom the full coverage rate exceeded the nil coverage rate. For all the other groups, the proportion with full coverage was much lower.

Full coverage was also more common among the married self-employed. About 19% had full coverage, almost twice the rate among their unmarried counterparts (9%). The married group owed their advantage in part to spousal coverage being extendable to partners. The full coverage rate for men (19%) also exceeded that for women (13%), partly because of the generally higher incomes of men. Additionally, the full coverage rate tended to rise as economic family size increased, doubling from 11% among one-person families to 21% among families of five or more. This is not surprising since having children may heighten the perceived need for insurance.

The full coverage rate tended to rise with education, age (up to 54), and job tenure (up to 19 years). All these factors have a strong positive relationship with income, adding further credence to the earlier finding that affordability is a major determinant of full coverage. The likelihood of nil coverage generally declined with education, age and job tenure.

Full coverage rate highest in Alberta, lowest in Saskatchewan

Coverage rates differed by province, partly because of the different services covered by provincial health-care plans (Chart C).  5  For example, while Quebec residents are covered by a prescription drug plan, this is not the case in many other provinces. Differences in the industry mix among provinces may also have played a role. The self-employed in Alberta and Manitoba registered the highest full coverage rates (22% and 21% respectively); those in Saskatchewan and Quebec (12%) recorded the lowest (Chart C). In contrast, the nil coverage rate was highest in Newfoundland and Labrador (49%), and lowest in Alberta (34%).

Full coverage highest in professional services, nil coverage highest in accommodation and food services

Coverage rates also differed by industry and occupation.  6  Among the major industries, professional, scientific and technical services (26%), and finance, insurance and real estate (23%) had the highest full coverage rates (Table 3). Many of the self-employed in these two industries purchased their plans through membership in a professional association. Also, because multiple jobholding is prevalent among workers in these industries, some acquired coverage through their second, paid job. In contrast, agriculture and other primary (9%) had the lowest full coverage rates.

Accommodation and food services (68%) had the highest nil coverage rate, perhaps partly because of affordability problems among these workers. Manufacturing (29%), and health care and social assistance had the lowest rates (27%).

Conclusion

Compared with employees, the self-employed are less likely to be covered by extended health, dental and disability insurance plans. Since the self-employed are not entitled to EI sickness or maternity benefits, they are also more likely to feel greater financial pain should they be prevented from working for these reasons. A large proportion of the self-employed acquire coverage in health and dental plans through the employer-sponsored plan of a spouse or close relative. For those not so lucky, direct purchase appears to be the most feasible option. While this is not normally a problem for the high-income self-employed, those less well off (usually the young and less educated) very often go without any health-related insurance coverage whatsoever.

Notes

1. In effect, the 17% full coverage rate represents the maximum possible for the self-employed, and the 50% rate understates the maximum possible for employees, since the three major coverage avenues open to the self-employed are available to employees as well.
2. The self-employed also tend to participate less in RRSPs. For example, in 1996, 35% of the self-employed purchased an RRSP compared with 43% of employees (Akyeampong 1999).
3. Despite this, more than half (55%) of the SSE respondents expressed no interest in subscribing to an income insurance program like EI (Delage 2002).
4. As expected, coverage rates were lower for the own-account self-employed (those without paid help) than for employers (those with paid help) since the latter often took advantage of economies of scale to purchase plan subscriptions. For example, about 3 in 10 of the own-account had dental plan coverage compared with 4 in 10 for employers (Delage 2002). The own-account constituted 54% of the total self-employed population; the remaining 46% were employers.
5. For more detailed information on provincial health plans, see "Health care services—recent trends." Health Reports (Statistics Canada, Catalogue no. 88-003-XPB) 11, no. 3, Winter 1999.
6. The coverage rates by occupation highly mimicked those by industry and hence are not repeated in this study. Another reason for omitting the occupational data is that meaningful comparisons could not be made since a very high concentration (65%) of self-employed were in managerial and service occupations while the rest were scattered in the other occupations.

References

• Akyeampong, Ernest B. 2002. "Unionization and fringe benefits." Perspectives on Labour and Income (Statistics Canada, Catalogue no. 75-001-XIE) 3 no. 8. August 2002 online edition.
• ---. 1999. "Saving for retirement: RRSPs and RPPs." Perspectives on Labour and Income (Statistics Canada, Catalogue no. 75-001-XPE) 11, no. 2 (Summer): 21-27.
• Delage, Benoit. 2002. Results from the Survey of Self-employment in Canada. Human Resources Development Canada (HRDC), Catalogue no. RH 64-11/2001E. Ottawa: HRDC. Internet: http://www.hrdc-drhc.gc.ca/sp-ps/arb-dgra/publications/SSE_report.html (accessed May 13, 2003).
• Lin, Zhengxi, Janice Yates and Garnet Picot. 1999. Rising self-employment in the midst of high unemployment: an empirical analysis of recent developments in Canada. Analytical Studies Branch. Research Paper Series no. 133. Catalogue no. 11F0019MIE1999133. Ottawa: Statistics Canada.
• Marshall, Katherine. 2003a. "Benefiting from extended parental leave." Perspectives on Labour and Income (Statistics Canada, Catalogue no. 75-001-XIE) 4, no. 3. March 2003 online edition.
• ---. 2003b. "Benefits of the job." Perspectives on Labour and Income (Statistics Canada, Catalogue no. 75-001-XIE). 4, no. 5. May 2003 online edition.
• Statistics Canada. 1998. Work Arrangements in the 1990s. Catalogue no. 71-535-MPB. Ottawa.

The authors are with the Labour and Household Surveys Analysis Division. Ernest B. Akyeampong can be reached at 951-4624 or perspectives@statcan.gc.ca. Deborah Sussman is currently on leave.

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