According
to a 2007 study, about 59% of employers at small firms (3-199 workers) in the
US provide employee health insurance. The percentage of small firms offering
coverage has been dropping steadily since 1999. The study notes that cost
remains the main reason cited by small firms who do not offer health
benefits. Small firms that are new are less likely to offer coverage than
ones that have been in existence for a number of years.
For example, using 2005
data for firms with fewer than 10 employees, 43% of those that had been in
existence at least 20 years offered coverage, but only 24% of those that had
been in existence less than 5 years did. The volatility of offer rates from
year to year also appears to be higher for newer small businesses.
The
types of coverage available to small employers are similar to those offered by
large firms, but small businesses do not have the same options for financing
their benefit plans. In particular, self-funded health care (whereby an
employer provides health or disability benefits to employees with its own funds
rather than contracting an insurance company) is not a practical option for
most small employers. A RAND Corporation study published in April 2008
found that the cost of health care coverage places a greater burden on small
firms, as a percentage of payroll, than on larger firms. A study published
by the American Enterprise Institute in August 2008 examined the effect of
state benefit mandates on self-employed individuals, and found that "the
larger the number of mandates in a state, the lower the probability that a
self-employed person will be a significant employment generator."Beneficiary cost sharing is, on average, higher among small firms than large
firms.
When
small group plans are medically underwritten, employees are asked to provide
health information about themselves and their covered family members when they
apply for coverage. When determining rates, insurance companies use the medical
information on these applications. Sometimes they will request additional
information from an applicant's physician or ask the applicants for
clarification.
States
regulate small group premium rates, typically by placing limits on the premium
variation allowable between groups (rate bands). Insurers price to recover
their costs over their entire book of small group business while abiding by
state rating rules. Over time, the effect of initial underwriting
"wears off" as the cost of a group regresses towards the mean. Recent
claim experience - whether better or worse than average - is a strong predictor
of future costs in the near term. But the average health status of a particular
small employer group tends to regress over time towards that of an average
group. The process used to price small group coverage changes when a state
enacts small group reform laws.
Insurance
brokers play a significant role in helping small employers find health
insurance, particularly in more competitive markets. Average small group
commissions range from 2 percent to 8 percent of premiums. Brokers provide
services beyond insurance sales, such as assisting with employee enrollment and
helping to resolve benefits issues.