Small businesses, not only in the US, play an important role in job growth and innovation. Medium and large businesses often thrive on the small businesses to provide complementary as well as supplementary services. The spirit of entrepreneurship finds its roots in the favorable atmosphere provided for the growth of small businesses.
Small businesses have to pay higher premiums as compared to their larger counterparts for offering health insurance to their employees. With the implementation of healthcare reforms, it is expected that small businesses will be greatly benefited.
Healthcare reforms will slow the growth rate of costs and expand health insurance coverage improving living standards of families. Unsustainable increase in the budget deficit will be checked and efficiency of the labor market will be enhanced…
Why small businesses are big!
Small businesses have significant presence in the economy of the US. Generally, small businesses are recognized through two measures i.e. number of employees and annual payroll. There are some good points in this PDF that give you an ample understanding of why small businesses are not small in the literal meaning. They contribute hugely to the U.S. economy, social stability, job creation, and international business.
- Small firms represent 99.7% of all employer firms.
- Small firms employ just over half of all private sector employees.
- Small firms pay 44% of total US private payroll.
- Small firms have generated 64% of net new jobs over the past 15 years.
- Create more than half of the nonfarm private gross domestic product (GDP).
Why existing health insurance system does not encourage small businesses
Small businesses do not find themselves motivated enough to offer health insurance to their employees. Even if they want to do, their move is impeded by the cost they have to bear, which quickly becomes out-of-question. On average, small businesses pay up to 18% more than large firms for the same health insurance policy [Gabel et al., 2006]. Why?
- Small businesses generally pay high broker fees for their policies; these fees typically range from 2-8% of premiums and in some cases may be up to 10%. Such commissions are on average greater than those paid by larger employers. [Conwell, 2002]
- The fixed costs to a private insurer of setting up and administering a firm’s health insurance policy can be spread over many more employees in large firms, and thus administrative costs per covered individual are up to three times higher for small firms. [Congressional Budget Office (2007).
- Small firms pay an additional amount per covered individual because of “adverse selection”. Private insurers know that, among small firms, those with workers who have high healthcare needs are more likely to seek insurance, which raises rates for other small businesses and prices may firms out of the market. [Congressional Budget Office (2009a) and Simon (2005)].
It is clear from these figures that there is hardly any impetus for small businesses to offer health insurance to their employees. According to Kaiser Family Foundation and Health Research and Educational Trust (2008), approximately half of firms with fewer than 200 employees not offering health insurance cite high premiums as the most important reason for not doing so.
Healthcare reforms—ray of hope?
With the implementation of healthcare reforms, small businesses are encouraged to provide health insurance to their employees. There are multiple benefits that will help the small businesses to decide in favor of asking insurers to administer a health plan to their employers. Some salient benefits of healthcare reforms for small businesses:
- Through Exchanges, low premium and high quality health insurance coverage will be available.
- Tax credits for small businesses.
- Employer responsibility requirements will be exempted.
- Subsidies for employees in small businesses where health insurance is not offered.
- Increasing entrepreneurship.
- Expanding the pool of workers available to small businesses.
- Eliminating job lack phenomenon.
- Workshop productivity will be increased and absenteeism will be reduced.
Without doubt, the benefits to small businesses are aplenty and healthcare reforms positively solve a lot of issues.
Agents, brokers, insurance carriers, and web portals should have no reservation to the implementation of healthcare reforms. With encouragement and feasibility of providing health insurance, the industry will see boost aside the fact that it has to play its own part in providing customized solutions to the small businesses.
Small businesses should be given their due importance in various national and international issues, and there is no reason why they should not be facilitated to grow further. [Inputs taken from a www.whitehouse.gov study conducted by CEA in 2009]