SMALL-BUSINESS HEALTH CARE ISSUES
Statement of Tarren Bragdon Director Health Reform Initiatives The Maine Heritage Policy Center
Committee on Senate Small Business and Entrepreneurship
February 13, 2007
Good morning, Chairman Kerry, Ranking Member Snowe, and members of the Committee. Thank you for inviting me to discuss ideas for expanding access and increasing affordability of health coverage for small businesses and their employees. The Maine Heritage Policy Center is non-profit, non-partisan research and educational organization located in Portland, Maine.
There are three main challenges for small business owners:
l .Offering coverage to employees
• 2.Affording a share of the premium necessary to attract the desired workforce
• 3.Finding competitive offerings in the small group market there are many steps Congress can take to ease the health care burden and support health benefits for small businesses.
Encourage Small Employers to Offer Coverage, Regardless of the Share of the Premium Paid by the Employer
While much has been said about the cost of health insurance, federal studies show that employees are very likely to get coverage through their employer if it is offered, even when the employer pays only a small share of the premium.
Although only 61 percent of small firms (fewer than 50 employees) offer health insurance to their employees compared to almost all (97 percent) larger firms, a similar 78 to 81 percent of those eligible enroll (take-up) health insurance provided through their employer. Those very small businesses with less than 10 or 25 employees have much lower offer rates – 34 and 64 percent, respectively. Interestingly, states with a higher share of small business employees who are offered health insurance also tend to have higher take-up rates.` This suggests that having more small businesses offer health insurance, almost regardless of the employer`s contribution, could significantly increase the portion and total number of those insured.
According to research published this month by the Kaiser Family Foundation, employees with the highest cost sharing (37 percent or more of the employee-only premium, or $1,570+ per year) still have a very high take-up rate of 68 percent. Those with 100 percent employer-paid coverage only have an 89 percent take-up rate. For expensive family coverage, take-up rates for those with the highest cost sharing (56 percent or more, or $6,460+ per year) are 77 percent compared to 90 percent for those with no family premium cost sharing. Even lower wage firms (those with more than 35 percent of employees earning less than $20,000 a year) had similar take-up rates for high levels of premium cost sharing.
These data seem to suggest that most employees will buy health insurance coverage at high take-up rates as long as it is facilitated through their employer.
Insurers seem to be recognizing the benefit of offering coverage through the workplace even with modest employer contributions. Blue Cross and Blue Shield of California BeneFits Portfolio and Employee Elect Plans offer participating small businesses (2 to 50 employees) a cafeteria plan with 6 to 17 different health plans. The minimum employer contribution is as low as $50 to $100 per employee per month with only 60 to 70 percent of eligible employees required to enroll. Plan range from first-dollar coverage HMO plans to HSA-compatible Plans.` This. concept is a private-market variation of the Connector that is part of the Massachusetts health reform of 2006.
All this would suggest that fairly modest federal tax incentives encouraging very small businesses (less than 25 employees) to simply offer health coverage would likely greatly increase offer rates for employers and take-up rates for employees. This more modest proposal would not have the significant federal fiscal impact of sizable small employer premium subsidies. This targeted approach would be broad in reach as there are an estimated 4.5 million such private establishments with a total 24.7 million employees. Employer premium subsidies, as provided in Chairman Kerry`s Small Business Health Care Tax Credit Act (S.99), albeit more broadly, would likely increase the offer and take-up rates even more.
Consider a Regional Approach to Small Business Health Plans
We appreciate Senator Snowe`s long-standing support of Association Health Plan (S.406) and Small Business Health Plans (S.1955). These would provide critical and immediate federal relief to small businesses struggling to provide coverage in the costly small group insurance market. These proposals should be part of any legislation designed to ease the small business health care burden.
This is most acute in Maine. Maine has only four active insurers in the small group market.` However, Connecticut, with just over twice as many small business employees, has 25 licensed carriers.` New Hampshire has fourteen, although it has fewer small business employees than Maine.`
Although much of the Small Business Health Plan legislation focused on benefit mandates, Maine`s costly small group insurance – 8`h highest in country` – is driven more by premium regulations – mostly Maine`s restrictive modified community rating. This is particularly a problem in Maine as 40 percent of all private- sector employees in Maine work for a small employer (less than 50 employees) – far above the national average of 29 percent. Only seven states have a larger share of the private workforce working for small businesses.
Medicare provides a model of a regional approach to coverage that provides more options to individuals in particularly small or rural states than would likely be available if each state were its own region. Maine and New Hampshire are combined for the Medicare Advantage (MA) and Medicare Part D Prescription Drug Plan (PDP) regions. The four remaining New England states are their own MA and PDP regions. This approach has given Maine seniors more affordable options.
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