Health Insurance:

Availability and Adequacy for Small Businesses

T-HRD-90-2: Published: Oct 16, 1989. Publicly Released: Oct 16, 1989.

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GAO discussed the problems that small businesses have in providing health insurance to their employees, focusing on restrictive changes in both small and large insurance company plans. GAO found that: (1) rising health care costs led to more than an 800-percent increase in business health spending between 1970 and 1987; (2) in 1988, health care costs increased 33 percent for firms with less than 25 employees, which was 1.5 times the rate that large businesses experienced; (3) only 46 percent of businesses with less than 10 employees offered health insurance, while almost all businesses with 100 or more employees offered health insurance; (4) firms with 25 employees or fewer employed 3.9 million of the 8.2 million uninsured workers; (5) factors which led to the erosion of health insurance for small businesses included their inability to spread risk over a large number of employees, the decline of community-rated health insurance products, and competition among insurers to offer coverage only to the best risks; (6) some insurers have used restrictive underwriting practices to move costly industries, firms, or individuals with preexisting conditions out of their risk pools; and (7) although some industry groups and state governments created multiple employer trusts and state-assigned risk pools, some pools had limited coverage and ran deficits, and many used medical underwriting and were subject to adverse risk pool selection.

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