Small business hit hardest in losing health coverage

The number of Americans without health insurance rose to 41 million last year, with virtually the entire decline among those working for small companies, according to U.S. Census Bureau figures released this week.

Small firms are caught in a vise: They are hit hardest by steep increases in their health insurance costs at the same time their revenues are down due to the recent economic downturn.

Unfortunately, a growing number of small firms have no choice but to drop health insurance.

The Census Bureau numbers show the results. Americans who work for businesses with fewer than 25 employees were half as likely to have health insurance last year as those who work for companies with 1,000 or more workers.

“A small employer with seven employees can easily spend $6,000 a month for health insurance, or nearly $1,000 per employee for family coverage, with premiums rising 20 percent a year,” said Kate Sullivan, director of health policy at the U.S. Chamber of Commerce.

A major contributor to the rising costs is the plethora of state health insurance coverage mandates and onerous insurance regulations. Federal and state legislators have been piling more and more requirements on what health insurance policies must cover, with more than 1,500 mandates in place now, requiring coverage for everything from nurse anesthetists to hair transplants.

Big companies can escape these mandates by insuring themselves, but small companies can’t. Either they buy a policy that covers all of the medical services the state legislature requires, or they go without.

Special interest groups have had great success in convincing state legislators to add their disease categories or specialty skills to the list of things a health insurance plan must cover, but small businesses and their employees pay the price.

Some state legislatures are considering ways to halt the march of expensive mandates by requiring costs analyses before any bill can be considered. It is a small step to begin to show people that government dictates for health insurance are not free.

The overall uninsured numbers would have been higher had more people not received health insurance through government programs.

The number of people covered by all government health programs jumped in 2001 from 24.7 percent to 25.3 percent. Now, more than one of four Americans gets their health coverage from the government.

Taxpayers are paying an additional price for this. Government officials in virtually every state are struggling with budget deficits, primarily driven by rising costs of Medicaid, the government program that provides health coverage to the poor. Many states are considering other program cuts and tax hikes to meet their budget shortfalls.

So what is to be done?

The central feature of President Bush’s health care agenda is providing refundable tax credits to individuals to purchase private health insurance. The credits would be “widely available to assist those who do not have good employer coverage options,” Treasury Secretary Paul O’Neill said on Monday.

A small number of workers displaced by trade and whose pension plans are administered by the Pension Benefit Guaranty Corporation will be eligible for credits enacted in August as part of the Trade Act of 2002.

But millions more people need help. Clearly, tying health insurance to the workplace is not working for a growing number of Americans.

The president wants to provide tax credits worth up to $1,000 to individuals and $3,000 to families to purchase private health insurance that they can own and keep. These credits would be available to employees who don’t get health insurance at work.

Wharton Professor Mark Pauly has conducted studies that show that the market for individually-purchased health insurance is healthier than commonly believed. His data also show that a tax credit with a 50 percent subsidy for health insurance, aimed at 20 million uninsured workers, would cause 10 million people to buy health insurance.

In addition, small companies need to be able to pool their buying power to share their exposure to the risk that an employee could have an expensive illness that drives up the premium costs for the whole company.

Labor Secretary Elaine Chao has called for Congress to enact Association Health Plans to give small businesses the same purchasing power and federal regulatory structure that large employers have.

“By allowing small businesses to join together through trade associations, employers will enjoy greater bargaining power, economies of scale, and administrative efficiencies,” Chao said.

State and federal budgets are stressed to the limits in providing health coverage to those already on their rolls. It only makes sense to figure out new ways to energize the private sector to reverse the decline in insurance coverage.

Offering financial support to workers to purchase their own coverage and better pooling mechanisms is a good start.

Grace-Marie Turner




Grace-Marie Turner is president of the Galen Institute, a research organization focusing on free-market health reform. She can be reached at P.O. Box 19080, Alexandria, VA 22320 or galen@galen.org.

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The number of Americans without health insurance rose to 41 million last year, with virtually the entire decline among those working for small companies, according to U.S. Census Bureau figures released this week.

Small firms are caught in a vise: They are hit hardest by steep increases in their health insurance costs at the same time their revenues are down due to the recent economic downturn.

Unfortunately, a growing number of small firms have no choice but to drop health insurance.

The Census Bureau numbers show the results. Americans who work for businesses with fewer than 25 employees were half as likely to have health insurance last year as those who work for companies with 1,000 or more workers.

“A small employer with seven employees can easily spend $6,000 a month for health insurance, or nearly $1,000 per employee for family coverage, with premiums rising 20 percent a year,” said Kate Sullivan, director of health policy at the U.S. Chamber of Commerce.

A major contributor to the rising costs is the plethora of state health insurance coverage mandates and onerous insurance regulations. Federal and state legislators have been piling more and more requirements on what health insurance policies must cover, with more than 1,500 mandates in place now, requiring coverage for everything from nurse anesthetists to hair transplants.

Big companies can escape these mandates by insuring themselves, but small companies can’t. Either they buy a policy that covers all of the medical services the state legislature requires, or they go without.

Special interest groups have had great success in convincing state legislators to add their disease categories or specialty skills to the list of things a health insurance plan must cover, but small businesses and their employees pay the price.

Some state legislatures are considering ways to halt the march of expensive mandates by requiring costs analyses before any bill can be considered. It is a small step to begin to show people that government dictates for health insurance are not free.

The overall uninsured numbers would have been higher had more people not received health insurance through government programs.

The number of people covered by all government health programs jumped in 2001 from 24.7 percent to 25.3 percent. Now, more than one of four Americans gets their health coverage from the government.

Taxpayers are paying an additional price for this. Government officials in virtually every state are struggling with budget deficits, primarily driven by rising costs of Medicaid, the government program that provides health coverage to the poor. Many states are considering other program cuts and tax hikes to meet their budget shortfalls.

So what is to be done?

The central feature of President Bush’s health care agenda is providing refundable tax credits to individuals to purchase private health insurance. The credits would be “widely available to assist those who do not have good employer coverage options,” Treasury Secretary Paul O’Neill said on Monday.

A small number of workers displaced by trade and whose pension plans are administered by the Pension Benefit Guaranty Corporation will be eligible for credits enacted in August as part of the Trade Act of 2002.

But millions more people need help. Clearly, tying health insurance to the workplace is not working for a growing number of Americans.

The president wants to provide tax credits worth up to $1,000 to individuals and $3,000 to families to purchase private health insurance that they can own and keep. These credits would be available to employees who don’t get health insurance at work.

Wharton Professor Mark Pauly has conducted studies that show that the market for individually-purchased health insurance is healthier than commonly believed. His data also show that a tax credit with a 50 percent subsidy for health insurance, aimed at 20 million uninsured workers, would cause 10 million people to buy health insurance.

In addition, small companies need to be able to pool their buying power to share their exposure to the risk that an employee could have an expensive illness that drives up the premium costs for the whole company.

Labor Secretary Elaine Chao has called for Congress to enact Association Health Plans to give small businesses the same purchasing power and federal regulatory structure that large employers have.

“By allowing small businesses to join together through trade associations, employers will enjoy greater bargaining power, economies of scale, and administrative efficiencies,” Chao said.

State and federal budgets are stressed to the limits in providing health coverage to those already on their rolls. It only makes sense to figure out new ways to energize the private sector to reverse the decline in insurance coverage.

Offering financial support to workers to purchase their own coverage and better pooling mechanisms is a good start.

Grace-Marie Turner




Grace-Marie Turner is president of the Galen Institute, a research organization focusing on free-market health reform. She can be reached at P.O. Box 19080, Alexandria, VA 22320 or galen@galen.org.

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About the author