The High Cost of Small Business Health Insurance: Limited Options, Limited Coverage

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Abstract

Small employers and their workers face an assortment of barriers to obtaining health insurance coverage. These include high administrative costs, limited ability to spread health care risk, and a low-wage workforce. These issues have led to low rates of coverage offers by small employers and high rates of uninsurance among their workers.  An insurance exchange, such as the one proposed in H.R. 3200, would spread health care risk and reduce administrative costs. The financial assistance provided to the low-income under the bill would benefit many small-firm workers.  As such, the bill would significantly increase coverage among workers of small employers.

Testimony

Mr. Chairman and distinguished Members of the Committee:

Thank you for inviting me to share my views on the health insurance challenges facing small businesses and their workers. While I am an employee of the Urban Institute, this testimony reflects my views alone and should not be attributed to the Urban Institute, its trustees, or its funders.

Small employers are at a significant disadvantage as purchasers of health insurance relative to large employers. The consequences are clear and consistent over time: small employers are much less likely to offer health insurance coverage to their workers and workers in small firms are more likely to be uninsured. The barriers that small employers face in insurance purchasing come on multiple fronts and, as premiums continue to grow faster than wages, the declines in small employer-based coverage outpace the declines among larger employers. Without significant reforms to how small group health insurance markets function and to health insurance options that are available to those without employer offers of coverage, there should be no expectation that these negative trends will be reversed.

Rate of Employer Offers of Coverage. As table 1 shows, the share of employers offering health insurance varies considerably by employer size. In 2008 (the most recent data available from the Medical Expenditure Panel Survey – Insurance Component, MEPS-IC), only 35.6 percent of employers with fewer than 10 workers offered insurance to their workers, compared with 98.9 percent of employers with 1,000 or more workers. In addition, declines in employer offers over time have been greatest among the small employers. Between 2000 and 2008, the share of employers with 100 or more workers offering coverage to their workers has remained essentially steady, whereas the share of employers with fewer than 100 workers offering coverage has fallen, with the smallest employers experiencing the largest relative declines. Employers with fewer than 10 workers were 10.1 percent less likely to offer coverage in 2008 compared to 2000, and those with 10 to 99 workers were roughly 4 percent less likely to offer coverage in 2008 than they were in 2000.

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