By: Michael Stubbs Daniel Stanley

Small Business Health Care Health insurance becomes harder to afford as the cost of health care increases in the US. The root of the problem and the base of the political debates over health care is the number of uninsured people in the US. According to a study done by the Kaiser Family Foundation in 2005, only 59% of small businesses offer health insurance to their employees. Rather than restructuring the whole health system in the US, solving health insurance issues at the small business level could be an easier and less drastic solution.

Small Business Health Care For employers, the money spent on providing health care to their employees can be spent in other ways. When the insurance costs reach a point in which price exceeds the means, some companies stop supplying health care and spend the money elsewhere. Smaller businesses tend to be hit harder by rising insurance costs, which results in a number of small businesses not supplying health insurance to their workers.

What is a Small Business? Differing credible sources define a small business in different ways. The state of Illinois definition of a small employer is any group from 2 to 50 employees. Same as the Health Insurance Portability and Accountability Act (HIPAA) Kaiser Family Foundation use the range of 3 to 199 employees

Firm Size Matters The size of a firm is a strong determinant of whether the company provides health insurance to its employees. According to a survey released in 2007 by the Kaiser Family Foundation, only 59% of firms with 3 to 199 employees offered health benefits. 99% of firms with 200 employees or larger offered health benefits

Firm Size Matters

Costs Too High The other 41% of small business employees must find health insurance elsewhere. 63% of small businesses not offering health insurance in 2002 cite a major reason of not doing so was that the business could not afford the cost. up 10% from the same survey done in 2000 due to the increase in health insurance premiums. Between 2000 and 2002, average health insurance premiums had risen 23.8% and continue to rise through 2007.

Internal Health Insurance The cost of providing health insurance depends on: What insurance provider the company uses What plan type the company chooses to supply. Some large companies manage their own health insurance plans through an internal human resource department. Most small businesses don ’ t have the funds or manpower to manage their own human resource department. Fees and commissions small businesses pay other companies to run their health insurance is one disadvantage they face when compared to larger companies that supply their own insurance.

Internal Health Insurance Most small businesses don ’ t have the funds or manpower to manage their own human resource department. The fees and commissions small businesses pay other companies to run their health insurance is one disadvantage they face when compared to larger companies that supply their own insurance.

Actuarial Assumptions Part of the cost of a group plan depends on actuarial estimations of the overall medical expenses of that group. The more people in the group, the more people can take on part of the cost of an unhealthy individual within the group. Lowers the probability of having higher medical costs than collected premiums No economies of scale

Small Business Health Fairness Act Different measures have been proposed to level the playing ground for small businesses. Several alternatives exist for small businesses to make health care plans affordable: Health Savings Accounts State Group Purchasing Arrangements Alternatives reduce costs for small businesses, but a better means of assisting small businesses may be the ideals proposed in the Small Business Health Fairness Act (SBHFA) of 2007.

Alternatives for Small Businesses Health savings accounts State purchasing agreements Disease management and wellness programs Small Business Health Fairness Act of 2007

Health Savings Accounts Created by Medicare Modernization Act in 2003 Employees set aside pre-tax wages Generally offered with high-deductible plans and offers reduced premiums for cost savings Only 7% of businesses off HSAs Complicated agreements and employees must be educated on how to effectively use HSAs

State Purchasing Agreements Purchase coverage through state association Small businesses pool together for cost savings (similar to SBHFA) Many plans offer reimbursement arrangements similar to HSAs Employees use funds in accounts for deductibles and out-of-pocket health care expenses

Disease Management and Wellness Programs Preventative approach Message therapists, discounts to health clubs, on site gyms, etc. Can be grouped with state association plans to reduce growth rate of premiums Minimal savings for small businesses

Small Business Health Fairness Act SBFA passed House vote in 2007 and in prior years 2005 Act attempted to amend ERISA and create association health plans (AHPs) Allows small businesses to pool resources and purchase plans only offered to large businesses currently

Current Situation Average health care coverage = $4,248 per employee in 2005 (slightly higher than large companies) Premiums are more costly for small firms relative to large firms Small employers premiums increased 8.8% versus 7.7% for large employers in 2006 Over 60% of uninsured Americans worked for small businesses or depend upon small business workers – Rep. Sam Johnson (R) Approximately 28.2 million Americans

SBHFA Benefits AHPs may reduce overhead costs by approximately 30% Costs are the primary reason why some small businesses do not offer health care to employees Excludes state mandates to cover certain conditions Lower premiums and other associated costs Pooling resources allows small businesses to self- insure Reduces uninsured numbers and Medicaid members, an $80 million costs reduction

Negative Consequences Lower government tax revenues Deductibility of employer contributions Higher employments costs to run programs Federal government estimated loss of $132 between 2006 – 2015 State budgets would incur net $35 million losses over similar time span Certain ailments such as diabetes would be uncovered Potential moral hazard

SBHFA’s Future Bipartisan debate In 2005, 100% of Republican supported the Bill while 82% of Democrats reject it Why such a large discrepancy? Dependant upon political climate: Democratic or Republican majority in House and Senate

Conclusion Comes down to sacrificing lower quality for lower costs Amendments are necessary for small employers to attract and retain employees Will our government accept potential revenue decreases to assist small businesses?

QUESTIONS??