From BLR's Best Practices in HR

Small employers often face a dilemma when offering health insurance benefits to their employees. Their costs keep escalating often at a higher and faster rate than those of large employers. Yet while their rates are generally higher per covered employee, covered health benefits may not be as comprehensive as those of larger companies.

Even when an employer purchases health insurance as part of a larger pool of small employers, the rate structure is often higher for this group than it is for individual large employers. Because of financial constraints, small employers may require employees to share a higher percentage of the monthly costs. Employees end up with less value for their benefit dollar, as do the small business firms.

In "Risky Business: When Mom and Pop Buy Health Insurance for Their Employees," Jon R. Gabel reports that when he reviewed premium and coverage changes reported in the Kaiser/HRET Survey of Employer-Sponsored Health Benefits from 2002 to 2003, he found significant differences between small employers (3 to 199 workers) and large firms (200+ workers). Premiums went up by 15.5 percent for small firms and 13.2 percent for large firms from 2002 to 2003. An average family premium contribution by employees in small firms in 2003 was $248 per month and $179 per month in large firms.

When reviewing benefits, the PPO (preferred provider organization) deductibles were significantly higher in 2003 for employees in small companies than for workers in large firms. In small firms, employees paid an average, out-of-pocket deductible of $419 for medical treatment in their PPO network and $783 for out-of-network treatment, while the workers in large firms paid $209 and $458, respectively.

Small employers may also not offer the broad coverage to their employees that large employers do, according to the study. Only 57 percent of small firms offer dental insurance to employees, compared with 87 percent of large firms.

A Practical Solution

Gabel, vice president of health systems studies for Health Research and Educational Trust, thinks that small employers should be provided with access to the advantages that larger firms have in purchasing health benefits and offers the following solution for consideration.

He suggests that health insurers serving state employee populations be required to offer the same level of coverage to small employers at the same price provided to the state government. In other words, the small employers would be placed into the same insurance coverage pool as the state employees.

Gabel believes that this could result in a win-win situation for large health insurance firms and for small employers. Small employers would receive comprehensive health benefits coverage for a reasonable cost. And the insurance companies could use the purchasing power of the larger group of employers to negotiate rates with better discounts with hospitals and physicians, eager for the business from this significant consumer population.

In addition, insurance companies would save significant dollars in not paying the industry's average commission of 8 percent to insurance brokers selling individual employer plans to small employers, adds Gabel.

Gabel's proposal deserves serious consideration. To access the Gabel's study results, visit http://www. cmwf.org and click on the "Health Insurance/Uninsured" link on the left side of the page. Meanwhile, small employers may want to contact their state legislators regarding this potential solution to their health insurance plight.