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Abstract
Small employers face substantial disadvantages relative to large employers when providing health insurance to their workers. These problems can largely be summarized as higher administrative costs of insurance, limited ability to spread health care risk, and a workforce with lower wages. But the primary barrier to coverage for workers in small firms is being low-income; workers in small firms are more than twice as likely as those in large firms to have family income below 200 percent of the federal poverty level. Significant inroads into reducing the uninsured in this population will require income-related subsidization of insurance coverage
The text below is Linda Blumberg's oral testimony.
Read the full written testimony in PDF format.
Testimony
Mr. Chairman, Mr. Grassley, and distinguished Members of the Committee:
Thank you for inviting me to share my views on health insurance and strategies for health care reform that affect small businesses and their workers. While I am an employee of the Urban Institute, this testimony reflects my views alone, and does not necessarily reflect those of the Urban Institute, its trustees, or its funders.
In brief, my main points are as follows:
- Small employers face substantial disadvantages relative to large employers when providing health insurance to their workers. These problems can largely be summarized as higher administrative costs of insurance, limited ability to spread health care risk, and a workforce with lower wages. All of these problems must be addressed if insurance coverage is to increase significantly among workers in small firms.
- Fixed administrative costs make it inefficient for insurers to sell coverage to small employers. The per-person price of buying insurance for a small group of individuals will always be higher than buying those same benefits for a large group. Allowing small employers and individuals to purchase coverage through organized purchasing pools, such as the Massachusetts Connector, state employees benefit plans, or other such group is an approach that could provide small employers and individuals with an avenue for more efficient purchasing.
- With regard to the second problem facing small employers—the limited ability to spread risk—small employers tend to have workforces with greater variance in year-to-year health care costs than large employers. While strategies are available to more broadly spread the risk associated with small-group and individual purchasing, some multigroup purchasing entities, such as proposed federally licensed association health plans, would tend to further segment the risks of small-firm workers, as opposed to spreading them more broadly. While that approach might lead to some savings for the
The text above is Linda Blumberg's oral testimony.
Read the full written testimony in PDF format.
The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders.
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Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
