For the first time in six years, the share of U.S. workers offered health insurance through their employer has risen, a sign a tighter labor market is prompting businesses to offer more generous benefits.

In March, 69% of private-sector employees were offered medical benefits from their employer, according to an annual survey the Labor Department released Friday. That’s up from 67% in 2017, and the first time the rate has increased since 2012.

The portion of employees offered medical benefits at work had been slowly declining. The reversal in the past year occurred as unemployment fell to 4.1% in March from 4.5% in the same month of 2017. The rate declined further to 4.0% in June, near the lowest rate in 18 years.

“It’s likely tied to today’s strong labor market,” said Andrew Chamberlain, an economist at recruiting site Glassdoor. “With workers in a stronger bargaining position and employers doing whatever they can to attract scarce talent.”

Friday’s report showed 86% of full-time, private-sector employees were offered medical benefits, and 21% of part-time workers could tap them.

This year, 94% of private-sector union members were offered medical benefits versus 66% of those not in labor unions.

Among all private-sector workers offered medical benefits, 72% opted to take them.

The share of private-sector workers offered health benefits had slowly trended down from 71% in 2010, the first year a comparable survey was conducted. The first survey was conducted in the same month the Affordable Care Act was signed into law. Provisions of the health-care law were rolled out of over the next several years.

Small employers, with fewer than 50 workers, are exempt from the law’s requirement to offer benefits and had most significantly cut back on insurance coverage in the past eight years, to 51% in 2018 from 55% in 2010.

Other data shows the share of small businesses offering health benefits was declining for several years before the law was passed, according to a report from the Employee Benefit Research Institute.

Larger businesses can opt to pay a penalty rather than offer health benefits to those working 30 hours or more a week, and some did so. Health insurance costs are rising, and the $2,000 penalty per employee for not offering benefits is less than the cost of coverage for most mid-sized employers, said Paul Fronstin, director of the Health Research and Education Program at the institute.

The share of large businesses, with 500 or more workers, offering health benefits has been mostly stable at near 90% since 2010, the Labor Department data showed. It was primarily businesses with 50 to 499 workers that offered benefits to a greater share of employees last year than the year before.

That could speak to those firms’ competition for talent with larger corporations.

An increasing share of employers are concerned about their ability to attract workers, while fewer worry about controlling benefit costs, said Bill Ziebell, head of Arthur J. Gallagher & Co.’s employee benefits and compensation consulting practice, referring to the firm’s survey of employers.

“If a business is lacking medical-insurance coverage, that’s a red flag to employees about the company’s stability and the kind of workplace it is,” he said. “Firms have to be competitive in what they’re offering when there’s a shortage of talent.”

A Glassdoor survey showed nearly 80 percent of workers preferred new or additional benefits to a pay increase. Dr. Chamberlain said workers’ preference for benefits, and the rising cost of insurance, partially explains why wage growth has been relatively slow even in a tight labor market. More compensation is being shifted to benefits, he said.

By Eric Morath
July 20, 2018 2:54 p.m. ET
Wall Street Journal