Not So Healthy

Health-insurance premiums for employers with fewer than 50 workers rose about 7% in the first half of 2007 compared with the same period last year, according to a September survey by the Kaiser Family Foundation. That was the smallest increase in a decade. But premiums would have been at least a couple of points higher if companies had not passed more of the costs to employees in the form of higher deductibles and co-pays.

Insurance premiums also continue to rise much faster than inflation, which increased 2.6% during the same period. "Though we are no longer seeing double-digit increases, it's still a crisis," says Amanda Austin, senior manager for health policy at the National Federation of Independent Business.

Only 45% of businesses with fewer than 10 employees now offer health benefits, down from 57% in 2000. Among companies with fewer than 200 employees, 59% provide coverage, compared with 99% of larger ones.

With little clout in the health-care marketplace, small employers often pay more to get the same benefits as large ones. In companies with fewer than 200 employees, the survey reported, 37% of covered workers pay more than 50% of the premiums for family coverage; just 5% of employees at larger companies pay that much. Because family coverage runs about three times as much as individual policies—the average family policy is $12,000 a year—many small employers are relying on creative strategies such as encouraging workers to buy individual policies for their children. A policy for a healthy child typically runs about $100 a month.

Surprisingly, small employers actually contribute a couple of hundred dollars a year more for single employee coverage than big employers do. The reason? Most small group policies require that a certain percentage of workers, generally 50%, participate in the plan, so the extra cash is an incentive to singles to sign up. That may help small companies recruit singles, but until they can do the same for workers with families, they will remain vulnerable to losing talent to big companies.

By Joshua Kendall

    Before it's here, it's on the Bloomberg Terminal.