Risky Business

Fewer Employees, Higher Health Insurance Costs

By Matthew Bandyk

Posted: June 16, 2008

I've written about how one of the biggest problems small-business owners have to deal with is buying health insurance for their employees when the costs are rising so dramatically. The National Association for the Self-Employed released the results of a survey today that gives us some more hard data on the issue. The survey is based on a sample of 4,000 "micro-businesses"—those with 10 or fewer employees—so it tells us about only the smallest of small businesses.

The results drive home how much more expensive it is for small businesses to pay insurance premiums—median costs rose from 3.7 percent of a business's total revenue to 5.5 percent. But they also offer some surprising statistics that aren't so negative—some of the smallest firms of this already small group actually saw a greater increase in access to health insurance than other firms. In 2005, 13.8 percent of businesses with under $50,000 in gross sales offered health insurance in 2005. Now that number is up to 40 percent.

The share of micro-business owners who have health insurance for themselves grew from 54.9 percent in 2005 to 67 percent in 2008. Some of that increase, however, might have been made possible for micro-businesses by cutting back on health spending for their employees. The proportion of respondents who buy coverage for their full-time employees dramatically fell from 46.2 percent to 18.6 percent.

Realities

The problems of small group insurance are partly due to the realities of risk and small numbers: there aren't enough people to spread the risk over.

The majority of our problems are due to wrong-headed governmental regulation of the health insurance markets. A couple of recent examples: the State of Colorado has doubled the number of health insurance mandates in the last couple of years. Buyers are forced to pay for coverage that may not suit them, and carriers leave the state due to burdensome administration.

The state of Texas does not allow Health Reimbursement Arrangement (HRA) accounts to reimburse for individual health insurance premiums. Employers are prohibited from assisting employees with pre-tax employer dollars when the employee wishes to purchase an individual health policy.

The socialized medicine and conspiracy theory types add nothing to the discussion when it comes to helping employers and employees figure out a prudent way to protect employees from catastrophe due to health care problems. An antidote to the "public health insurance" blather is to watch Stuart Browning's videos (stuartbrowning.net) on the Canadian health care system. Also, "Uninsured in America" is sober tonic to the hysteria of socialized medicine proponents. (I have no connection with Browning or his efforts.)

Public health insurance is anti-sick people. You're okay as long as you don't use the system. God help you if you do.

Michael of CO @ Jun 17, 2008 11:18:44 AM

What would you expect in the willful absence of the regulators

It is no surprise that the prices are raising. This is the response to the increase in costs of at least 12 % for each of the last 25 years. Then in addition, there have been some companies that had failed. You know no money as they spent funds on all manor of things. The regulators never did get to them. We had insurance companies doing every sort of thing. One bought a telephone company in a distant country. It had nothing to do with insurance but it was a crapshoot. Not quite what was envisioned when insurance companies were established?

Another interesting factor is the reduction of competing companies and the domination in a market area of the surviving company. I do not think that was the intent of the company licensing acts in various jurisdictions. It just does not help the consumer. You know that person or gal-one of us.

This will continue, as the political leaders are able to allow it and even profit from it at the expense of us dumb bunnies.

I hope someone reads this and takes it to heart. Sadly, from my experience, no one does and it is of no avail.

stephen of PA @ Jun 17, 2008 07:56:09 AM

Time to think and vote again

This folks, is one of the very important reasons why America should be moving to public health insurance-----because it would be PRO-BUSINESS to do so, and especially PRO-SMALL-BUSINESS.

There is no reason small businesses should be paying more than large ones due to selective underwriting of small groups. There is no reason that small businesses should be having to settle for a second class of employees (those worried sick about heath insurance or those too dumb to know they need it).

There is no reason for very small employers to be forced to either spend themselves to bankruptcy to cover employees or face their un-insured employees with a "let them eat cake" attitude in a close-quarters working relationship.

Citizens can have whatever health-care-funding mechasim we want in America, just like other free nations that do theirs much more sensibly than we do here. So far, we have not faced down the underwriting corporations. Republicans will be bringing our the likes of Reverend Wright this year too, to prevent us from doing so if they possibly can. Question is, "How Dumb Are We?"

Daniel David of NM @ Jun 16, 2008 18:00:04 PM

Add Your Thoughts
About You

advertisement

Risky Business

Risky Business

Matt Bandyk, a reporter for U.S. News, explores capitalism from where it all begins, with the entrepreneur, whose risk taking and experimentation provide the roots from which the rest of the economy grows. As much courage as it takes to create one's own business, even the entrepreneur needs some help, and this blog will look at news, trends, and practical advice for starting and running a small business.

advertisement

advertisement

Subscribe

U.S. News Digital Weekly

A weekly insider's guide to politics and policy — in a multimedia, digital format. 52 issues for $19.95!

U.S. News & World Report

6 months of U.S. News & World Report's print edition for only $15. Save up to 67% off the cover price!