COVERAGE: Health Costs Squeezing Small Businesses -- And Their Workers
We've known for years that small companies face a struggle to offer health care to their workers, or pass on more of the costs to the employees. But, with health costs increasing every year, these struggles are even more pronounced. More bad news; the plans they offer are also of a slightly lower quality, Jane Sarasohn-Kahn at Health Populi tells us.
Small companies don't have the bargaining clout of a huge corporation, and with fewer workers, they can't spread the risk as well. Federal legislation to allow them to band together has been stuck for years, victim in part of deep disagreement about the role states should have in regulating insurers or requiring specific benefits. But a new study from the Kauffman-RAND Institute for Entrepreneurship Public Policy (KRI) sheds light on coverage trends among big and small firms between 2000 and 2005.
The report found that in 2005, overall, the average firm spent 7 percent to 10 percent of payroll on health insurance. But the smaller firms spent more. The smallest offering firms (fewer than 25 employees) shouldered the highest overall burden, spending, on average, 11 percent of payroll on health insurance. Moreover, in 2005, half of all small businesses offering insurance spent more than 10 percent of payroll on it.
People who worked at small firms that offered health insurance paid more out of pocket too—1.9 percent of earnings compared to an employee at a business with 100 or more employees spending 1.3 percent.
But as our colleague Sarah Axeen reminds us, as health costs continue to rise, only some of the increase is shifted on to workers (through increased out-of-pocket spending, for example). The employers shoulder the remainder. Since cost increases cannot be completely shifted on to workers in the short-run (because of factors like union contracts, minimum wage laws, and the unpredictability of the increases) employers are bearing the burden through lower profits and reduced international competitiveness. For small businesses, with razor-thin profit margins, this competitive disadvantage is felt all the more acutely.
To summarize: health insurance is becoming unaffordable, especially in the small business setting, leading to even more uninsured workers and families. As Health Populi put it, "As health insurance costs continue to increase, a growing number of employers face that global competitive advantage that is unique to American business: covering health care." We agree. These trends strengthen the case for rethinking how we link insurance to the workplace, and improving the individual marketplace so it is efficient, equitable, and affordable. We need to cover everybody in a sustainable system because our global economic competitiveness is not just about trade policy. It's about health policy.