By:Michael StubbsDaniel Stanley

Small Business Health CareHealth 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 CareFor 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 MattersThe 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 MattersPercentage 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 SurveyÓ Kaiser Family Foundation and Health Research and Education Fund

Costs Too HighThe 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 InsuranceThe cost of providing health insurance depends

on:What insurance provider the company usesWhat 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 InsuranceMost 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 AssumptionsPart 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 ActDifferent 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 AccountsState 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 BusinessesHealth savings accountsState purchasing agreementsDisease management and wellness programsSmall Business Health Fairness Act of 2007

Health Savings AccountsCreated by Medicare Modernization Act in

2003Employees set aside pre-tax wagesGenerally offered with high-deductible plans

and offers reduced premiums for cost savingsOnly 7% of businesses off HSAs

Complicated agreements and employees must be educated on how to effectively use HSAs

State Purchasing AgreementsPurchase coverage through state associationSmall businesses pool together for cost

savings (similar to SBHFA)Many plans offer reimbursement

arrangements similar to HSAsEmployees use funds in accounts for

deductibles and out-of-pocket health care expenses

Disease Management and Wellness ProgramsPreventative approachMessage therapists, discounts to health

clubs, on site gyms, etc.Can be grouped with state association plans

to reduce growth rate of premiumsMinimal savings for small businesses

Small Business Health Fairness ActSBFA passed House vote in 2007 and in prior

years2005 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 SituationAverage health care coverage = $4,248 per

employee in 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 BenefitsAHPs may reduce overhead costs by

approximately 30%Costs are the primary reason why some small

businesses do not offer health care to employeesExcludes state mandates to cover certain

conditionsLower premiums and other associated costsPooling resources allows small businesses to self-

insureReduces uninsured numbers and Medicaid

members, an $80 million costs reduction

Negative ConsequencesLower government tax revenues

Deductibility of employer contributionsHigher employments costs to run programsFederal government estimated loss of $132

between 2006 – 2015State budgets would incur net $35 million

losses over similar time spanCertain ailments such as diabetes would be

uncovered Potential moral hazard

SBHFA’s FutureBipartisan debateIn 2005, 100% of Republican supported the

Bill while 82% of Democrats reject itWhy such a large discrepancy?

Dependant upon political climate: Democratic or Republican majority in House and Senate

ConclusionComes down to sacrificing lower quality for

lower costsAmendments are necessary for small

employers to attract and retain employeesWill our government accept potential revenue

decreases to assist small businesses?

QUESTIONS??