Health Insurers, Small Firms In a Marriage of Convenience

America’s Health Insurance Plans (AHIP), the industry trade association, and the National Federation of Independent Business (NFIB), one of two groups representing small firms, have not always been on the same page. While the pair did work together to kill the Clinton health plan, AHIP opposed the Bush Administration’s proposal to allow small companies to form association health plans so they could bargain for better insurance rates.

But recently, the AHIP board of directors issued a statement supporting federal legislation to make insurance more affordable to small firms. AHIP proposed nationwide “essential benefit plans” that would be subject to state regulation but exempt from state benefit mandates. The insurance association also backed tax breaks for small businesses to buy insurance. And AHIP asked the government to allow employees who receive government assistance under Medicaid, SCHIP or other programs to apply those funds to their share of premiums for employer-based coverage.

The AHIP statement followed a nationwide fact-finding trip by AHIP President and CEO Karen Ignani. But her sympathy for the stresses that small businesses are under was not the only reason for AHIP’s volte-face. Insurance companies would like to get more business from small companies at a time when big corporations—their core base—are laying off legions of workers. In addition, with the health care reform movement approaching critical mass, and serious discussions going on in Washington among the key players, AHIP needs all the allies it can find to shape the legislation to its liking.

At the same time, small employers need all the help they can get with health insurance. According to the National Small Business Association (NSBA), which represents 150,000 small firms, the percentage of small-business owners who provide health coverage to their employees dropped from 67 percent in 1995 to 38 percent in 2008. In a survey of the firm’s members, most of whom employ 50 or fewer people (half under 10 workers), NSBA found that their average insurance rate increase in 2008 was 15 percent; over the 4-year period ending that year, the average small employer had seen insurance rates skyrocket 55 percent. That goes a long way toward explaining why only a minority of companies still offer coverage.

Nearly a third of the respondents to the NSBA survey said that their cost of health insurance accounts for 16 percent or more of their employees’ total compensation. Fifty-eight percent said they had eliminated worker raises to pay for insurance, and 39 percent held off on hiring new employees as a result of soaring health costs.

One of the most interesting findings was that 55 percent of the respondents were concerned that the new law authorizing the government to subsidize COBRA premiums for laid-off workers would adversely affect their cash flow. Many small firms were also concerned about the administrative costs of recouping the federal tax credits and of informing employees about the change in the law.
Considering the political influence and economic clout of small businesses, NFIB President and CEO Dan Danner was probably right when he said, “Small business is the key for any comprehensive health care solution.” The question is whether these employers will support reform that is sweeping enough to solve the problem.