Private Health Insurance: Small Employers Continue to Face Challenges in Providing Coverage

Many small employers--those with 50 or fewer workers--do not offer health benefits to their employees. This is particularly true for employers with fewer than 10 workers. The families of workers employed by small employers are about twice as likely to be uninsured as households with a worker at a large employer. Despite efforts by Congress and the states to help small employers buy coverage, many small employers continue to cite cost as a major obstacle to providing coverage. Small and large employers purchasing health insurance generally had comparable premiums in 1998, but this comparison does not fully reflect the challenges facing small employers in providing health insurance for their employees. Although the premiums were similar, the health plans offered by small employers were slightly less generous on average--they had slightly higher average cost-sharing requirements for their employees and were somewhat less likely to offer some benefits, excluding, for example, mental health services and chiropractic care. Also, insurers' costs to administer employer-based health insurance and protect against potentially large health care costs result in a larger share of small employers' premium dollars being spent on these nonbenefit expenses. Nearly all states have passed laws that limit the ability of insurers to vary premiums charged to small employers on the basis of the group's risk factors, including health. Other state efforts to make insurance more affordable for small employers have had limited results. Few small employers appear interested in lower-cost benefit packages that require significantly higher cost sharing by individuals or that scale back benefits that are covered.