The Economic Burden of Providing Health Insurance How Much Worse Off Are Small Firms?

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Abstract:

More than 60 percent of nonelderly Americans receive health-insurance coverage through employers, either as policyholders or as dependents. However, rising health-care costs are leading many to question the long-term viability of the employer-based insurance system. Concerns about the economic burden of providing health insurance are particularly acute for small businesses, which are both less likely than larger firms to offer health insurance and more sensitive to price when deciding to offer insurance. Small firms may have difficulty containing costs due to their limited bargaining power and their inability to hire experts skilled in negotiating with insurance companies. Further, while few recent studies have systematically explored differences in the quality of health-insurance plans that small and large firms offer, there is some evidence to suggest that small firms may offer health plans of lower quality.
To better understand these issues, researchers from the Kauffman-RAND Institute for Entrepreneurship Public Policy (KRI) explored trends in the economic burden associated with health-insurance provision, as well as the distribution of this burden, for small and large businesses. Researchers also considered the quality of plans that small and large firms offer. To measure economic burden, researchers examined firms’ health-insurance spending relative to payroll. To understand the generosity of health-insurance plans offered, researchers reviewed specific plan characteristics as well as the predicted actuarial value of the plans. Data for these analyses come from the Employment Cost Index (ECI), a quarterly survey of businesses conducted by the U.S. Bureau of Labor Statistics (BLS), as well as the Employee Benefits Survey (EBS), a periodic survey of employer health plans that BLS also conducts.