Small businesses–particularly those with 10 employees or fewer—stand to be the big winners if a public health insurance option like the one now before the House of Representatives becomes a reality, according to a new issue brief by the Economic Policy Institute.
The study, Health Care Reform, Big Benefits for Small Businesses estimates that small businesses with 10 or fewer employees could save about $3,500 per worker annually under a public plan similar to the House Tri-Committee's proposal.
Elise Gould, the director of health policy research at EPI, and one of three authors of the issue brief, says the findings shouldn't be surprising. "Small businesses bear a heavy burden in the current failing healthcare system," Gould says. "Small businesses and their employees pay higher prices for less coverage. They are often priced out of the private market completely and, when that happens, it puts them at a great disadvantage when it comes to hiring and retaining employees."
The EPI brief compares the House bill to a similar plan called Health Care for America, which was drafted under EPI's Agenda for Shared Prosperity program. Both the House bill and the EPI plan create a new public insurance option and a requirement that employers offer affordable coverage to their workers or pay to defray the costs of enrolling in a national insurance marketplace.
"The gains to small business are likely to be even greater under the House version of the healthcare reform bill, as it is even more generous to small business," says Josh Bivens, an EPI economist, and a coauthor of the brief.
Employer-sponsored insurance is the primary source of health insurance for non-elderly Americans, covering nearly 63% of adult Americans. ESI premiums of $532 billion in 2008 accounted for nearly one-quarter of all non-Medicare healthcare spending in the United States that year.
However, rising healthcare costs have been particularly tough for small businesses. Small employers hold little bargaining leverage with health insurance companies and have suffered relentless cost hikes that threaten to make health insurance too expensive. The brief notes that the ongoing decline in small business coverage for employees is responsible for much of the erosion in ESI coverage since 2000.
Nearly half of the uninsured worker population is employed by a small business. A Kaiser Family Foundation employer survey last year found that 35% of small businesses offer health insurance to their workers, compared to 99% of large firms with 200 or more workers, and 63% of all firms. The Kaiser survey has also shown that most of the decline in overall ESI offering in recent years has been driven by reduced insurance offering at small firms.
Small firms that do offer health insurance pass on a higher share of the cost of plans to workers; average contributions by workers in small firms are between 30% and 45% higher than in larger firms. Small businesses are paying on average 18% more than larger firms for identical health insurance policies, owing to higher and more variable health risks, a lack of competition among small-group market insurers, greater administrative expenses, and lower wages, according to the issue brief.