The Breaking Point
Why health care reform is crucial to small business
By: Todd O. McCracken, President
Why Does Small Business Matter?
• Small Firms:
– Represent 99.7 percent of all employer firms
– Employ half of all private sector employees
– Create between 60 to 80 percent of all net new jobs
– Produce 13 to 14 times more patents per employee than large
firms
• The small business share of employment remains around 50 percent
• 78 percent of small businesses have fewer than 10 employees
• 61 percent of small businesses are micro-businesses with fewer than 4
employees
Total Premium Increase Compared
Against Other Economic Indicators
2000 - 2006
100
90
87
80
73
70
60
59
50
43
40
30
25
20
11
10
0
0
2000
4
3
2001
7
5
2002
12
10
10
7
2003
Health Insurance Prem ium s
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2006
2004
Inflation
20
18
15
14
2005
2006
Worker's Earnings
Annual Premium Increase Compared
Against Other Economic Indicators
2000 - 2006
16
14
13.9
12.9
12
11.2
10.9
10
9.2
8
8.2
7.7
6
4
3.9
3.1
4
3.3
3
2.2
2.6
1.6
2
2.3
2
3.8
3.5
3.5
2.7
0
2000
2001
2002
2003
Health Insurance Prem ium s
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2006
2004
Inflation
2005
2006
Worker's Earnings
Annual Premium Increase by
Employer Size
18
16
14
12
10
8
6
4
2
0
2000
2001
2002
2003
2004
2005
2006
Very Small Businesses (3 to 24 Workers)
Small Businesses (3 to 199 Workers)
Large Businesses (200+ Workers)
Total
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2006
*2000- 2003 data uses firm size of 3 to 9, 2004-2006 reports consolidated very small businesses to 3-24 workers
Comparison of Premium Increases
by Employer Size
18
16.5
16.6
15.5
16
14
12
13.2
12.5
11.8
10.5
10.2
9.8
10
8.8
8.9
7
8
6
4
2
0
Very Small Businesses (3 to 24
Workers)
Small Businesses (3 to 199
Workers)
2001
2003
2005
2006
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2006
*2001 and 2003 data uses firm size of 3 to 9, 2005 and 2006 reports did not distinguish between 3 and 24 employees.
Large Businesses (200+
Workers)
Percentage of Businesses Offering
Health Benefits by Firm Size
120%
99% 99% 98% 98% 99% 98% 98%
100%
80%
60%
57% 58% 58% 55%
52%
47% 48%
40%
20%
0%
Very Small
Businesses (3 - 9
Employees)
2000
2001
2002
2003
Large Business
(200+ Employees)
2004
2005
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2006; KPMG Survey of Employer-Sponsored Health Benefits, 1996.
2006
Overall Percentage of Firms
Offering Health Benefits, 2000 - 2006
66
65
65
64
63
63
63
62
62
61
61
60
60
59
59
58
57
56
2000
2001
2002
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2006
2003
2004
2005
2006
Percentage of Firms Offering Health
Benefits, by Firm Size in 2006
120%
100%
87%
98%
73%
80%
60%
92%
48%
40%
20%
0%
3 to 9
10 to 24
25 to 49 50 to 199
200+
Firm Size by Number of Employees
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2005
Percentage of Businesses Offering More than
One Health Plan Option by Firm Size
90
79
80
70
57
60
50
39
40
30
20
20
10
0
Sm all Firm s (3 to 199
Workers)
200 - 999 Workers
1,000 to 4,999
Workers
5,000+ Workers
Percentage of Small Employers Considering
Changes to Employee Health Plans
Not considering any
changes in the next year
49%
Source: NSBA Member Survey, October 2005
Considering change in the
next year
51%
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2005
Expected Changes to Employee
Insurance Plans
50%
45%
44%
41%
40%
35%
30%
25%
24%
22%
20%
15%
15%
10%
3%
5%
0%
Increasing
Employee Share
Reducing
Benefits
Source: NSBA Member Survey, October 2005
Switching to
Reducing
High Deductible Contributions to
Plan
HSA/FSA
Dropping
Coverage
Other Options
Percentage of Employee Premium
Paid for by Employer
49% or less of
Premium
30%
100% of Premium
30%
80% to 99% of
Premium
19%
50% to 80% of
Premium
21%
100% of Premium
80% to 99% of Premium
Source: NSBA Member Survey, October 2005
50% to 80% of Premium
49% or less of Premium
Employee Premium Cost-Sharing Trend
Small vs Large Business
$7,000
Employee Share
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
2003
2004
2005
2006
Large Employers
Source:Hewitt Associates, US Bureau of Labor Statistics
2007
2008
2009
1-99 Employees
2010
Allowable State Variations Within a
Particular Plan
30
25
20
15
10
5
0
AK AL AR AZ CA CO DE FL ID IL KS MA MD ME MI MN NC ND NH NJ NY OK SC SD TX VT WA WI WY
Ratios 2.5 10.8 3.3
4
1.2 7.9
7 9.3 20.3 23.6 1.7
Source: National Association of Insurance Commissioners
3 2.3 4.2 2.5 8.2 8.1
2 3.5
2
1
14 2.5 21.3 27.4 1
4.9 20.5 27.3
Piecemeal Solutions:
Why They Won’t Work
•
Association Health Plans (AHPs)
– Attempt to provide cost-cutting by allowing trade-associations to create a national pool for
their members under a new set of federal rules
• Would create adverse selection and segment the market due to AHP’s ability to skim off
the healthiest individuals.
•
Small Employer Health Benefit Plans (SEHPB)
– Patterned after federal employees’ health plan, SEHPBs would establish a federally-run
insurance pool for small businesses
• Would create adverse selection on part of the SEHPB due to a rich benefit package,
guarantee issue and government subsidies on the plan
•
Enzi Health Care Proposal
– Would allow for limited AHPs with state oversight and preempt certain states’ rating rules
• Best of all three initiatives, but doesn’t go far enough in creating broad reform and
enhancing consumer involvement
NSBA Health Care Proposal
•
Individual Responsibility
–
•
Broad Reform of the Insurance Market
–
–
–
–
•
Individuals and families would receive federal financial assistance for health premiums, based upon
income
Reshape Health Insurance Tax Incentives
–
–
•
Establishment of a federally-defined basic minimum package that is truly basic in nature
Actuairily-determined rate bands established within which insurance companies could price their
products
Insurance companies would operate under a guarantee issue system
States would retain oversight and authority over all plans under the federal framework
Provide Subsidies for Low- Income
–
•
All individuals would be required to obtain coverage providing for the spreading of risk with all
individuals in the insurance pool.
Tax parity for all purchase of health insurance, whether purchased through an employer or individually
Cap tax-preference on health expenditures at the premium level for the required package
Reduce Costs and Improve Quality
–
–
–
Instituting increased consumerism requires ample information be available to consumers
Increased IT in health care through electronic medical records and procedures to both reduce errors and
increase efficiency
Pay-for-Performance based on actual health outcomes and standards established through evidence-based
indicators and protocols