Surprise! Small Firms Pay More For Healthcare Than Big Corporations Some of the nation’s top healthcare researchers are saying what many small businesses owners have long suspected—small firms pay more for less in terms of health insurance.
| | What are Consumer Driven Healthcare Plans?
Here we briefly describe three types of consumer-driven health care plans as described in the recent Commonwealth Fund Study.
In the first group, health reimbursement arrangements (HRAs), a spending account is established for employees to draw upon for health care purchases. When the account is depleted, the employee must pay for services out of pocket until the deductible is met, at which point the HRA plan becomes a traditional major medical plan. At the employer’s discretion, unspent funds can be carried over to the next year. Typically, HRA plans’ deductibles exceed $1,000. They are not portable from employer to employer and cannot be used for non-medical expenses. Employees may not contribute to the spending account.
A second class of plans, termed “personalized” or “design-your-own” plans, allows employees to design their own networks and benefit packages. Using a Web-based tool, employees select individual physicians and hospitals along with their benefit package. These choices determine the cost of each person’s plan. Employers contribute a fixed amount for the cost of the plans, and employees bear the financial risk for their choice of providers and benefit packages. Only a few U.S. employers now offer a “design-your-own” plan.
A third class of plans, “customized-package plans,” allows employees using Web-based tools to choose from a predetermined selection of network offerings (for example, broad, medium, and narrow networks) and benefit packages (for example, rich, medium, or thin). From this hypothetical set of offerings described above, employees choose one of nine options. Employers contribute a fixed amount, and employees are at financial risk for their selection of plans. Health plans offer customized plans primarily in the small and midsize employer market, and typically only one carrier’s products are available to the firm’s workers.
Health Savings Accounts allow employees or their employers to contribute on a pretax basis to an account—if the person selects a high-deductible plan. Contributions may not exceed $2,500 per year for a single person or $5,000 for a family, nor may they exceed the size of the deductible. HSAs are portable from employer to employer and are not subject to any taxation as the account grows and when it is used. Hence, HSAs have substantial tax subsidies that are not conferred for other health plans.
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These researchers, supported by The Commonwealth Fund conclude that big firms have significant advantages over their smaller brethren when it comes to purchasing health insurance.
After analyzing 14 years of data researchers headed by Jon Gabel and Jeremy Pickreign of the Health Research and Education Trust (HRET) find that compared to larger corporations, small businesses that provide health insurance for their employees consistently - get less for their money,
- suffer faster premium increases
- have steeper jumps in deductibles over time than large firms
Employees Also Pay More
Employees in small firms also pay more of their premium costs and have higher deductibles. They also pay more for family coverage—but less for single coverage—than employees in large firms.
Titled, “In Risky Business: When Mom and Pop Buy Health Insurance for Their Employees the report concludes that small employers do not have the advantages of larger firms in providing benefits to workers.
Their findings, based on an analysis of 14 years of benefits and premium trends for small and large firms, point to the need for reform of the health insurance market for small business, including new options for helping small firms gain access to the advantages large businesses have in buying health benefits.
Need To Reverse Trend
"If we want to reverse the trend of growing numbers of uninsured Americans, we should be making it easier, not more difficult for small businesses to provide health coverage for their employees, who make up the largest proportion of uninsured individuals.” said Commonwealth Fund President Karen Davis. “Policy options such as allowing small businesses to buy into federal or state employee benefit programs, and premium assistance to help low-income workers afford coverage, would be a good start."
The study labeled as small firms, as those employing 3-199 workers, experienced greater annual premium increases than large firms between 1989 and 2003.
According to the study, small firms saw their premiums increase by 15.5% from 2002 to 2003, compared with 13.2% for firms with more than 200 workers.
According to the study and other experts, small firms have been particularly hard hit by large increases in deductibles in recent years. From 2000 to 2003, average deductibles among small firms doubled in PPO plans when employees use in-network providers and jumped 131% when they use out-of-network providers; among large firms the increases in deductibles in PPO plans were 33% percent and 44% respectively.
Small Firms Heavily Burdened
“Burdened with inherently higher administrative costs, having fewer lives over which to spread the risk of catastrophic costs, and lacking the purchasing power of large firms to negotiate with insurers, small employers are doomed under current practices to separate but unequal status,” said Gabel, vice president at HRET. “It’s a risky business to go it alone when it comes to health insurance.”
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