Small Firms Shoulder Burden of Increasing Health Costs

FRIDAY April 4, 2008 -- The economic burden of providing health insurance for employees increased more for small U.S. businesses than for larger businesses from 2000 to 2005, but most small businesses have not stopped offering the benefit, a new study finds.

The study, released Friday by the Rand Corp., of more than 2,500 small, medium and large companies found that small businesses (fewer than 25 employees) were hit with a 30 percent increase in the cost of providing health insurance. Their share of offering employee health insurance increased from an average of 8.4 percent of their payroll in 2000 to 10.8 percent of payroll by 2005.

Health insurance costs increased 16 percent for companies with 25 to 49 employees, and increased 25 percent for businesses with 50 to 99 workers.

While small companies were less likely than large businesses to provide health insurance, the small businesses that did offer the benefit were no more likely than large businesses to stop providing the benefit.

"Perhaps these small businesses -- and ultimately, their employees -- were willing to accept the burden of rising health insurance costs, even if it meant giving up wage increases," study author Christine Eibner, an associate economist at Rand, said in a prepared statement. "What we don't know is whether small companies and their employees will continue to make this tradeoff."

She did find that small businesses tended to offer slightly lower-quality health plans than larger companies, and that larger businesses were more likely to offer drug and dental coverage. In addition, non-HMO plans offered by large employers tended to have lower deductibles and coinsurance rates.

At a small company, an average worker would spend 1.9 percent of annual earnings on out-of-pocket health expenses, compared with 1.3 percent for an average employee at a company with more than 100 workers.

The Rand Corp. is nonprofit research organization.

More information

The U.S. Department of Labor has more about employer-based health plans.

Posted: April 2008


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