Small business owners can afford health insurance

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Small business owners can afford health insurance

Surveys show the smaller a business, the less likely it is to offer health insurance to its workers. In 2003, half of the nation's uninsured were either self-employed or worked for companies with fewer than 26 workers.
 
Why is coverage less affordable? It's more difficult to predict the average cost of medical care for a small group. In addition, small employers have fewer workers to spread the risk of health claims. So an employee who becomes chronically ill and begins submitting costly claims will have a greater impact on the overall costs to a small business than a large one. Insurers adjust for the higher risk of insuring small groups by boosting premiums. Those premiums also reflect the higher cost of selling and administering coverage to small firms.
 
What is the average cost? A recent survey showed the total cost of health benefits for employees in small firms (from 10 to 499 employees) was $6,359 per person. That includes employer and employee premium contributions but not employee out-of-pocket expenses, which can be substantial. For example, in nearly a third of small-employer PPO (preferred provider organization) plans, the annual deductible for in-network services is $1,000 or more, the survey found.
 
Can a small company serve as its own health insurer? Unlike large employers that directly fund health insurance for their workers, the financial risk of self-insuring is far too great for the majority of small businesses to bear. Typically, a small employer buys coverage from an insurance company that assumes responsibility for paying workers' covered medical claims.
 
What health plan options are available to small groups? Commercial insurers and managed care companies sell insurance to small groups, although the cost and availability of these policies varies greatly from one state to another. To get the best deal, you should compare quotes from several health insurers serving your marketplace. In a handful of states, small employers have formed purchasing alliances or cooperatives to negotiate better rates and benefits packages from insurers. Check with your state insurance department or local chamber of commerce to find out what options may be available.
 
Are employees required to submit their medical history? In group health plans, insurers generally do not review the specific health history of individual employees. The premium is based on the characteristics of the entire group. An exception to that practice is for very small groups, explains the Congressional Research Service, an arm of the Library of Congress that prepares reports for the U.S. Congress. If only a few employees elect coverage, the insurer may review the health conditions of each person to establish a premium for the group. Or, if state law permits, the insurer may charge a higher premium to offset the higher risk of insuring a small group.
 
SOURCES: National Health Policy Forum Background Paper, Health Insurance Coverage for Small Employers, April 19, 2005; National Survey of Employer-Sponsored Health Plans 2004, Mercer Human Resource Consulting, New York; Are Health Insurance Premiums Higher for Small Firms?, Policy Brief No. 2, September 2002, The Robert Wood Johnson Foundation; Health Insurance: A Primer, (updated Feb. 3, 2005), Congressional Research Service, The Library of Congress, Washington, D.C.; Health Purchasing Alliances for Small Firms: Lessons from the California Experience, May 1998, The California HealthCare Foundation, Oakland, Calif.
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