By:
Michael Stubbs
Daniel Stanley
Small Business Health Care
Health insurance becomes harder to afford as the
cost of health care increases in the US.
The root of the problem and the base of the
political debates over health care is the number of
uninsured people in the US.
According to a study done by the Kaiser Family
Foundation in 2005, only 59% of small businesses
offer health insurance to their employees.
Rather than restructuring the whole health system
in the US, solving health insurance issues at the
small business level could be an easier and less
drastic solution.
Small Business Health Care
For employers, the money spent on providing
health care to their employees can be spent in other
ways.
When the insurance costs reach a point in which
price exceeds the means, some companies stop
supplying health care and spend the money
elsewhere.
Smaller businesses tend to be hit harder by rising
insurance costs, which results in a number of small
businesses not supplying health insurance to their
workers.
What is a Small Business?
Differing credible sources define a small business
in different ways.
The state of Illinois definition of a small employer
is any group from 2 to 50 employees.
Same as the Health Insurance Portability and
Accountability Act (HIPAA)
Kaiser Family Foundation use the range of 3 to 199
employees
Firm Size Matters
The size of a firm is a strong determinant of whether
the company provides health insurance to its
employees.
According to a survey released in 2007 by the Kaiser
Family Foundation, only 59% of firms with 3 to 199
employees offered health benefits.
99% of firms with 200 employees or larger offered
health benefits
Firm Size Matters
Percentage of Companies Offering Health Insurance
# of Employees 2002 2003 2004 2005 2006 2007
3-9 58% 55% 52% 47% 48% 45%
10 - 29 70% 76% 74% 72% 73% 76%
25 - 49 86% 84% 87% 87% 87% 83%
50 - 199 95% 95% 92% 93% 92% 94%
All Small 66% 65% 63% 59% 60% 59%
Over 200 98% 98% 99% 98% 98% 99%
Source: ÒEmployer Health Benefits: 2007 Annual SurveyÓKaiser Family Foundation
and Health Research and Education Fund
Costs Too High
The other 41% of small business employees must
find health insurance elsewhere.
63% of small businesses not offering health
insurance in 2002 cite a major reason of not doing
so was that the business could not afford the cost.
up 10% from the same survey done in 2000
due to the increase in health insurance premiums.
Between 2000 and 2002, average health insurance
premiums had risen 23.8% and continue to rise
through 2007.
Internal Health Insurance
The cost of providing health insurance depends on:
What insurance provider the company uses
What plan type the company chooses to supply.
Some large companies manage their own health
insurance plans through an internal human
resource department.
Most small businesses don’t have the funds or
manpower to manage their own human resource
department.
Fees and commissions small businesses pay other
companies to run their health insurance is one
disadvantage they face when compared to larger
companies that supply their own insurance.
Internal Health Insurance
Most small businesses don’t have the funds or
manpower to manage their own human resource
department.
The fees and commissions small businesses pay
other companies to run their health insurance is
one disadvantage they face when compared to
larger companies that supply their own insurance.
Actuarial Assumptions
Part of the cost of a group plan depends on actuarial
estimations of the overall medical expenses of that
group.
The more people in the group, the more people can take
on part of the cost of an unhealthy individual within the
group.
Lowers the probability of having higher medical costs
than collected premiums
No economies of scale
Small Business Health Fairness
Act
Different measures have been proposed to level the
playing ground for small businesses.
Several alternatives exist for small businesses to
make health care plans affordable:
Health Savings Accounts
State Group Purchasing Arrangements
Alternatives reduce costs for small businesses, but
a better means of assisting small businesses may be
the ideals proposed in the Small Business Health
Fairness Act (SBHFA) of 2007.
Alternatives for Small Businesses
Health savings accounts
State purchasing agreements
Disease management and wellness programs
Small Business Health Fairness Act of 2007
Health Savings Accounts
Created by Medicare Modernization Act in 2003
Employees set aside pre-tax wages
Generally offered with high-deductible plans and
offers reduced premiums for cost savings
Only 7% of businesses off HSAs
Complicated agreements and employees must be
educated on how to effectively use HSAs
State Purchasing Agreements
Purchase coverage through state association
Small businesses pool together for cost savings (similar
to SBHFA)
Many plans offer reimbursement arrangements similar
to HSAs
Employees use funds in accounts for deductibles and
out-of-pocket health care expenses
Disease Management and Wellness
Programs
Preventative approach
Message therapists, discounts to health clubs, on site
gyms, etc.
Can be grouped with state association plans to reduce
growth rate of premiums
Minimal savings for small businesses
Small Business Health Fairness Act
SBFA passed House vote in 2007 and in prior years
2005 Act attempted to amend ERISA and create
association health plans (AHPs)
Allows small businesses to pool resources and
purchase plans only offered to large businesses
currently
Current Situation = $4,248 per employee in
Average health care coverage
2005 (slightly higher than large companies)
Premiums are more costly for small firms relative to
large firms
Small employers premiums increased 8.8% versus
7.7% for large employers in 2006
Over 60% of uninsured Americans worked for small
businesses or depend upon small business workers –
Rep. Sam Johnson (R)
Approximately 28.2 million Americans
SBHFA Benefits
AHPs may reduce overhead costs by approximately
30%
Costs are the primary reason why some small businesses
do not offer health care to employees
Excludes state mandates to cover certain conditions
Lower premiums and other associated costs
Pooling resources allows small businesses to self-
insure
Reduces uninsured numbers and Medicaid members,
an $80 million costs reduction
Negative Consequences
Lower government tax revenues
Deductibility of employer contributions
Higher employments costs to run programs
Federal government estimated loss of $132 between
2006 – 2015
State budgets would incur net $35 million losses over
similar time span
Certain ailments such as diabetes would be uncovered
Potential moral hazard
SBHFA’s Future
Bipartisan debate
In 2005, 100% of Republican supported the Bill while
82% of Democrats reject it
Why such a large discrepancy?
Dependant upon political climate: Democratic or
Republican majority in House and Senate
Conclusion
Comes down to sacrificing lower quality for lower costs
Amendments are necessary for small employers to
attract and retain employees
Will our government accept potential revenue
decreases to assist small businesses?
QUESTIONS??