Small Businesses Struggle to Provide Health Coverage

Wednesday 17, Oct 2012 | 11:07am

Helping the Bottom Line Sources

Introduction

Across the country, small businesses are struggling as the cost of health care continues to skyrocket. Americans who build and run the millions of small companies around this country have seen insurance costs consume a greater share of their payroll. High costs are making it impossible for many small businesses to provide insurance to their employees. Helping the Bottom Line: Health Reform and Small Business, provides important information on how the high cost of health care burdens small businesses, weakens our economy and leaves millions of Americans without the affordable health care they need and deserve.

Small Businesses Struggle to Provide Health Coverage

A Large Fraction of Uninsured Workers are in Small Businesses: Nearly one-third of the uninsured – 13 million people – are employees of firms with less than 100 workers.1

Fewer Small Businesses Are Offering Insurance: From 2000 to 2007, the proportion of non-elderly Americans covered by employer-based health insurance fell from 66% to 61%.2 Much of this decline stems from small business. The percentage of small businesses offering coverage dropped from 68% to 59%, while large firms held stable at 99%.3

Workers Not Offered Coverage Are At Great Risk: Half of workers in small firms that do not offer health benefits are uninsured. About a third of such workers in firms with fewer than 50 employees obtain insurance through a spouse.4

The Burden of Rising Health Care Costs

Cost is the Barrier: The driving force behind the erosion of health coverage among small businesses is cost. In one national survey, nearly three-quarters of small businesses that did not offer benefits cited high premiums as the reason.5 One reason small businesses feel this pinch is that they pay more on average for administrative services such as marketing, enrollment, and premium collection.6

Disrupts and Diminishes Coverage: In the past two years, more than half of small businesses that offered coverage reported switching to plans with higher out-of-pocket costs in response to rising premiums. Another third switched to a plan that covered fewer services, and 12% dropped coverage entirely.7

Drain on Payroll: Among small businesses that offer coverage, 40% report spending more than 10% of their payroll on health care costs.8

Limits Business Growth: Forty percent of small businesses said that health costs have had a negative impact on other parts of their business (for example, contributing to high employee turnover or preventing business growth).9

Providing Health Benefits is “The Right Thing to Do”

Valued by Employers and Employees: Small employers state that offering benefits helps with employee recruitment and retention, increases productivity, and is the “right thing to do.”10

Improves Productivity: Small firms are often hit harder when workers go on sick leave, because they cannot afford to maintain a “reserve pool” of workers to replace those who are absent.11 Indeed, nearly half of small businesses in a recent survey said that their business would be more productive if they had health coverage for themselves and their employees.12

Reform as a Top Priority for Small Businesses: Nearly half of small business owners in a recent survey said that ‘making health care more affordable’ is the idea Washington should address first.13 The National Small Business Association adds, “…relief from escalating health insurance premiums… can only be achieved through a broad reform of the health care system with a goal of universal coverage, focus on individual responsibility and empowerment, the creation of the right market-based incentives, and a relentless focus on improving quality.”14

Sources

1 Current Population Survey March 2008.

2 Kaiser Family Foundation, The Uninsured: A Primer, Key Facts about Americans without Health Insurance, (Menlo Park, CA: Kaiser Family Foundation, 2008).

3 Kaiser Family Foundation, Employer Health Benefits 2008 Annual Survey, (Menlo Park, CA: Kaiser Family Foundation, 2008).

4 Center for Financing, Access and Cost Trends, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey 2006.

5 Holve E, Brodie M, Levitt L. Small business executives and health insurance: Findings from a national survey of very small firms. Managed Care Interface. 2003;16(9):19–24.

6 Congressional Budget Office. CBO’s Health Insurance Simulation Model: A Technical Description. October 2007. http://www.cbo.gov/ftpdocs/87xx/doc8712/10-31-HealthInsurModel.pdf

7 The Main Street Alliance. Taking the Pulse of Main Street: Small Business, Health Insurance, and Priorities for Reform. January 2009. http://mainstreetalliance.org/wordpress/wp-content/uploads/2009_01_15_Taking_the_Pulse_of_Main_Street.pdf

8 The Main Street Alliance. Taking the Pulse of Main Street: Small Business, Health Insurance, and Priorities for Reform. January 2009. http://mainstreetalliance.org/wordpress/wp-content/uploads/2009_01_15_Taking_the_Pulse_of_Main_Street.pdf

9 The Main Street Alliance. Taking the Pulse of Main Street: Small Business, Health Insurance, and Priorities for Reform. January 2009. http://mainstreetalliance.org/wordpress/wp-content/uploads/2009_01_15_Taking_the_Pulse_of_Main_Street.pdf

10 Fronstin P, Helman R, Greenwald M. Small employers and health benefits: Findings from the 2002 small employer health benefits survey. EBRI Issue Brief. Jan 2003;253:1–21.

11 Pauly MV, Nicholson S, Xu J, et al. A general model of the impact of absenteeism on employers and employees. Health Economics. 2002;11:221–231.

12 The Main Street Alliance. Taking the Pulse of Main Street: Small Business, Health Insurance, and Priorities for Reform. January 2009. http://mainstreetalliance.org/wordpress/wp-content/uploads/2009_01_15_Taking_the_Pulse_of_Main_Street.pdf

13 Robert Wood Johnson Foundation. Small Business Owners Say Cutting Health Care Costs, Need for Reform are Top Concerns. December 3, 2008. http://www.rwjf.org/coverage/product.jsp?id=36550

14 National Small Business Association. Small Business Health Care Reform: A Long-Term Solution for All. http://www.healthreformtoday.org/reform.html

Prepared by:

Meena Seshamani, MD, PhD, Director of Policy Analysis, Office of Health Reform, Department of Health and Human Services

Report Production by the HHS Web Communications and New Media Division

via Small Businesses Struggle to Provide Health Coverage.