Access to Health Insurance:

State Efforts to Assist Small Businesses

HRD-92-90: Published: May 14, 1992. Publicly Released: May 14, 1992.

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Pursuant to a congressional request, GAO examined states' efforts to improve the availability and affordability of health insurance that small business employers obtain.

GAO found that: (1) 43 states have adopted or proposed one or more insurance regulatory reforms to improve access to affordable health insurance for small firms and their employees; (2) although regulatory reforms may improve the availability of health insurance for individuals who change jobs or experience costly medical conditions, insurers may pass on the resulting costs to all beneficiaries, raising average premiums; (3) 21 states have passed legislation reducing or eliminating state-mandated health benefits, to permit insurance companies to offer less costly insurance policies to small businesses; (4) mandates could deter small businesses from offering health insurance if they appreciably increase health insurance premiums, although studies have shown that mandates increase premiums by a maximum of 20 percent; (5) many insurance companies responded to the reduced-mandate legislation and developed plans to reduce premiums by 15 to 40 percent, but the reductions also resulted from increased beneficiary cost sharing and exclusions of preexisting conditions; (6) small business owners consistently cite the high cost of health insurance as the primary reason they do not offer coverage to their employees, but by September 1991, 21 states had subsidized health insurance premiums for small businesses either directly or through income tax credits or premium tax waivers; (7) many of the state initiatives have been in effect for less than 2 years, and early indications show that they have led to only modest gains in the number of firms offering health insurance; and (8) some states have established risk-pooling mechanisms to help small business employees obtain health insurance by spreading risks more widely through groups of individuals or businesses.