Remote possibilities | The struggle for small, rural business owners to provide coverage for their employees is daunting
Research associate at the Institute for Health Policy, Muskie School of Public Service at the University of Southern Maine
Given the national debate over health reform, it is no revelation that businesses everywhere are struggling to provide health insurance coverage. Over the past decade, the cost of a health plan has more than doubled, forcing many employers to drop coverage and preventing others from offering it in the first place.
Rural employers tend to be smaller and are particularly hard pressed to deal with rising health insurance premiums, especially given the other financial strains of the country’s economic recession. Our research has shown that rural workers are less likely than their urban counterparts to have a job that even offers health insurance coverage. The principal reason for this is that rural people are more likely to work for small employers who face the combined pressures of higher health insurance premium costs and smaller operating margins. Between 2000 and 2007, the percent of large businesses that offered health insurance stayed the same, while among small business (those with fewer than 200 employees) the proportion slipped from 68% to only 59%, according to a recent survey by the Kaiser Family Foundation.
There are a number of reasons that small businesses pay more for health insurance. First, they simply have less purchasing power than larger firms and can’t negotiate lower rates. Related to this, insurance companies spend more per enrollee on marketing and administration for small group plans, and they pass these costs on to small businesses. Finally, insurers worry that small businesses face a greater risk that sick employees could outweigh the healthy ones (referred to as “adverse selection”) and they charge more accordingly. Given these factors, it is clear why the National Federation of Independent Business noted in its 2008 report on small business problems and priorities that the cost of health insurance “continues its reign as the number one small business problem, a position it has held for over 20 years.”
The challenges of providing health insurance can be even greater in rural states like Maine that tend to have less competition in the insurance market. Rural businesses tend to have fewer health insurance options to choose from than urban businesses. Moreover, studies have shown that even among firms of the same size, rural businesses pay more for the same plan than do their urban counterparts.
Recognizing the issues that small businesses face in providing health insurance to their employees, many states and the federal government have considered or implemented health reforms that target small employers. In Maine, the Dirigo Health Reform legislation enacted in 2003 contained provisions to make insurance more affordable for small business. These included regulating how much insurers can charge small plans for administrative and marketing costs, and creating Dirigo Choice — a health insurance product for small businesses and the self-employed, with public subsidies for lower-income workers. As of May 2009, more than 9,400 Maine residents were enrolled in Dirigo Choice with almost 30,000 having been enrolled at some time since its inception.
Dirigo Choice has faced its own financial limitations, however, and has been forced to cap the enrollment of subsidized subscribers. Even before the cap, the Dirigo Choice product was unaffordable for many businesses and their employees. The state plans to improve this with a federal grant to lower costs for seasonal and part-time workers, with a special emphasis on personal care attendants — a profession with a high uninsured rate.
At the national level, the debate over health reform is of particular interest to small businesses. Although nothing has been finalized, policymakers have put forth a number of ideas for increasing coverage and controlling costs, including requiring employers to provide health insurance to workers, or to pay a fee toward their coverage. Because this could have serious repercussions for many small businesses — defined as having annual payrolls under $250,000 or $500,000, depending on the version — most reform plans exempt small businesses.
The creation of insurance purchasing alliances such as health insurance exchanges, or “co-ops” where small businesses can band together and negotiate with insurers for more favorable premiums, is a popular reform idea. In theory, this option has the potential to increase affordability for small businesses; however, actual experience to date has not found that these alliances increase coverage. Part of the reason is that not all insurers have been willing to offer plans to purchasing alliances, so policymakers will need to find ways to ensure that all businesses have access to “co-op” plans. Also, since even the lower premiums that may be possible through co-ops will still be too costly for some businesses, substantial subsidies to small businesses and their employees are likely to be needed to make this option affordable and effective.
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