Small business health insurance: paying more for less satisfaction

Small businesses are less satisfied with their health insurance plans than large companies, and fewer small firms offer health plans today than at the beginning of the decade. That’s according to research from PricewaterhouseCoopers out this week. The survey found that smaller firms (in this case that means around 200 employees and less than $50M in sales) were less satisfied on any number of measures, including cost-related (discounts and fees) and performance-related (disease management, wellness programs, accuracy and timeliness of claims processing).

But what really jumped out at me was this chart:

The share of small firms offering health insurance dropped by 9 percent from 2001 to 2007. I looked at the most recent data from the Kaiser Foundation (on page 4 of this PDF), and that actually ticked up a little in 2008, with 62 percent of small firms offering insurance. But among the smallest firms (sometimes called microbusinesses) with 3 to 9 employees, just under half offer health insurance, down from 58 percent in 2001-02.

This matters for a number of reasons:

  • The uninsured in America will disproportionately be small business owners and employees, which hurts the productivity of small firms.
  • If small companies can’t offer affordable health benefits, that damages their ability to recruit the best workers and makes them less competitive.
  • The risk of going uninsured discourages entrepreneurs from leaving steady jobs to start companies, which could be a drag on innovation.

Here’s an excerpt from the PwC report’s conclusions:

As small businesses continue to pay more for insurance, get less service, and become less satisfied, the employer sponsored insurance model will continue to erode. This means rising numbers of uninsured and a potentially louder call for government to solve the problem. A more standardized best-practice model of delivery is likely to strike a chord with small employers and individuals.

I’m not going to wade into the morass of competing campaign claims about health care. For a rundown of the candidate’s proposals, check out this short and clear primer by BusinessWeek’s Cathy Arnst.

But I think the effect on small business and competitiveness isn’t a big enough part of the health care debate. The fact is that in the US, if you work for a large corporation, you probably have access to decent care at a reasonable cost. If you run or work for a small business, you may not. I paid 75 percent of my premiums at one small company I worked for. When I was a freelancer, I bought high-deductible insurance and had to pay out-of-pocket for most expenses. Now I work for a big company, and I pay a token amount toward my premiums, in exchange for good coverage, without really thinking about it.

The availability of insurance has a real effect on how people decide where to work and whether to start their own companies. I don’t know what the best solution to our health care problem is. But small businesses and their employees have a lot to gain by solving it.