Health Insurance Coverage Erodes for Employees at Small Businesses

The economy may be booming, but the percentage of small firms offering health-care coverage to their employees is shrinking and the ranks of uninsured workers continues to grow.

Those are among the sobering findings of a recent report by the Henry J. Kaiser Family Foundation, which concludes that small businesses are the “Achilles’ heel” of America’s employer-based health insurance system.

While the economy was on a tear from 1996 to 1998, the percentage of the nation’s small-business work force covered by employer health insurance actually declined to 47% from 52%--the first time it has dropped below 50% since Kaiser began tracking the trend eight years ago, according to Drew Altman, foundation president.

He says the findings are disturbing, coming during a period when the economy was roaring and the rise in health insurance premiums was relatively tame.

“If small employers can’t afford coverage for their workers in the best of times, what’s going to happen when the economy turns around?” Altman asked.

The national survey of nearly 1,600 small firms revealed that the percentage of companies offering health-care coverage to their workers declined to 54% in 1998 from 59% in 1996. Erosion of coverage among workers was most severe among firms with 25 to 49 employees, where 55% of workers were covered under company plans in 1998, down sharply from 66% just two years earlier.

Wage structure was another important factor determining who goes uninsured. “Low-wage” small businesses, defined as companies where 35% or more of workers earn less than $20,000 a year, were only half as likely to offer health benefits as were “high-wage” firms, where 90% or more of the work force earns more than $20,000 annually.

Even when workers at small firms do have health insurance, they’re likely to have lesser coverage, higher premiums, bigger deductibles and fewer plan choices than their counterparts at large companies, according to the survey.

Which doesn’t mean that the folks at the Menlo Park-based Kaiser Family Foundation are blaming small-business owners for the sorry state of worker health care. The report shows that small-business premiums are rising faster than those of large firms, and that entrepreneurs are scrambling to find less-costly alternatives before they drop coverage altogether. An estimated 25 million American workers were uninsured in 1997. Fully three-quarters of them are full-time employees of small businesses.

“The vast majority of small-business owners would love to provide their employees with health insurance coverage,” said Altman, who believes that government subsidies will be needed to help more workers gain coverage. “They just can’t afford it.”

The report is available on-line at https://www.kff.org under the “health policy” icon.