Help Small Business Provide Health Coverage
Dec 06, 2009
Publisher: San Diego Union Tribune

If employer-based health insurance coverage is to remain the cornerstone of the nation's health care system, we can't achieve the major objectives of reform - reducing costs, expanding coverage and increasing economic growth - without lowering insurance rates for small businesses and extending coverage to more of its workers.

A healthy work force is a productive work force, and unless health reform leads to greater coverage for small-business workers, we will not achieve our goals.

Small businesses are America's job creators. Firms with fewer than 20 employees make up 18 percent of private-sector jobs, and firms with fewer than 100 workers account for 36 percent, according to the U.S. Small Business Administration.

But while these vibrant businesses employ much of the country's work force, they are far less likely than large employers to offer health insurance. For example, only 46 percent of firms with three to nine workers offered health insurance in 2009, while 98 percent of companies with at least 200 workers had health plans, according to a Kaiser/HRET Employer Survey. Of all the companies surveyed, 60 percent offered health benefits this year.

One of the biggest reasons for the discrepancy is that small businesses do not have the clout of larger firms when negotiating price and coverage. Costly broker fees, higher fixed administrative costs and adverse selections cause small businesses to pay as much as 18 percent more per worker than large firms pay for the same policy. As a result, nearly 60 percent of small-business employees and their families go without health insurance.

Making coverage affordable to small businesses is critical. In the right combination, an array of health plan choices together with tax credits for employers could achieve affordability. With the market fragmented by so many suppliers, small businesses would benefit greatly from an exchange where they could buy health plans. Even more ambitious would be to allow employers to form their own exchanges, which would likely lower administration costs and broker fees.

In addition, employers should receive well-designed tax credits for providing health insurance to their workers. The base for the credit must be broad enough to cover a large number of small businesses, which recent proposals in Congress don't do. We would also urge Congress against adopting a tax-credit limit on average employee wages, which could be counterproductive. Employers may curb pay raises and hire fewer skilled workers to keep average wages down and avoid losing the tax credit.

Of course, creating the right health system is not just about coverage for sick employees; it's about preventing them from getting sick in the first place.

With properly designed, employer-provided packages and incentives, employees would be more apt to exercise and alter unhealthy behavior. They could receive screening to detect diseases early. Employees and their families could have access to lifesaving treatments. Employers could encourage healthy behavior by offering wellness programs, covering the deductible for screening procedures and giving away prizes and awards. If this carrot approach doesn't convince workers to alter their unhealthy behaviors, employers can provide disincentives such as reducing the subsidies provided for insurance premiums. Why should employees showing improved behaviors subsidize those who don't?

Improving the health of our work force would decrease overall health care costs in this country and strengthen the economy by reducing lost productivity when employees call in sick, try to work while ill or stay home to care for a sick family member. A 2007 Milken Institute study, "An Unhealthy America: The Economic Burden of Chronic Disease," estimated that lost productivity from seven chronic diseases amounted to $1.1 trillion in 2003 and will reach $3.4 trillion in 2023 if nothing changes. Small businesses bear their share of that burden.

The study showed how better care, good nutrition and more exercise can increase productivity. We demonstrated that this healthier path and higher productivity would increase the nation's gross domestic product as much as $905 billion over 20 years. Small businesses would find that by providing coverage to their employees, they would have a healthier and more productive work force, and a more competitive firm.

By helping small businesses, we help employees and their families achieve better health, reduce future costs, boost productivity and enhance the competitiveness of the U.S. economy. We have much to lose - and much to gain. As the final health care bill takes shape, we can't overlook small business and the importance of health to the nation's people and the economy.

Chatterjee is senior research analyst at the Center for Health Economics at the Milken Institute. DeVol is director of the institute's Center for Health Economics.