June 30, 1998

MORE HEALTH-PLAN OFFERS, BUT FEWER CAN AFFORD THEM

At first glance, results produced by a newly released survey on small-business health insurance show some encouraging trends: The percentage of tiny companies (those with 3-9 employees) offering coverage climbed from 43% to 51% from 1989 to 1996. Results were equally upbeat for companies of 10 to 24 workers, with coverage rates rising from 72% to 78%.

But the study, "Trends in Job-Based Health Insurance Coverage," conducted by the UCLA Center for Health Policy Research and KPMG Peat Marwick for the Henry J. Kaiser Family Foundation, makes the case that merely offering employees health insurance doesn't mean that they'll take it. Hit by increasing premium costs and limited health-plan choice, actual "take-up" rates -- or the percentage of those offered insurance who sign up for it -- have declined since 1989. Seventy-five percent of employees in companies with 3-9 workers took coverage in 1996, down from 80% seven years earlier. Take-up rates for companies of 10-24 employees also fell, from 71% to 68%.

"The trend is for employees to pay more and more for their share," says Larry Levitt, director of the Changing Health Care Marketplace Project for the Kaiser Family Foundation. "It's great that more employers are offering coverage, but they have to be mindful of how much they're costing employees."

The study found that even among relatively larger companies (those with over 25 employees), workers' health-care premiums more than doubled. Annual health maintenance organization (HMO) premiums, for instance, zoomed from $272 to $525 from 1989 to 1996. The numbers were more drastic for preferred provider organizations (PPOs), where premiums grew from $171 to $451.

As Levitt explains it, small businesses have none of the purchasing power usually afforded large corporations or nonprofit institutions. And even though they exert political power in Washington and state capitals, "in the marketplace, they have no clout." What's worse, says Levitt, is that state health-purchasing groups, which pool small-businesses into lower-cost bargaining forces, are "undermarketed" and not well-known to small-business owners.

As small companies try to reduce health-care costs, they've begun to eliminate much of the health-plan choice that spurs employees to sign up, the report says. And they're passing more costs on to those employees. The study suggests that "employers face increases in the cost of their health benefits which are notably greater than they experienced during the past few years."

With costs mounting -- which makes employees less likely to sign up for insurance -- the study predicts the cumulative effect will be to "increase the number of working Americans and their families without health coverage."

And though each individual company may be only a small employer, Levitt that contends their fate is important to the nation's health. "Small businesses are the engines of growth in the country," he says. "It's hugely important to focus on their role and experience in the health-care system."

By Dennis Berman
Staff Reporter, Business Week Online