The cost of employee health insurance at small businesses rose faster than inflation last year, with the annual premium for family coverage at the average 3-to-199 employee company increasing by $328 to $15,581, the 2013 Kaiser Family Foundation Health Benefits Survey reveals. Despite (or because of) our policy makers’ efforts, employee health insurance remains a burden for small business owners.
Measured in inflation-adjusted terms, the cost of employee health insurance has nearly doubled since 1999, when Kaiser Family Foundation data show that the average annual premium for covered workers with family coverage at small businesses was only $7,968 (in 2013 dollars).
Rising Costs and Dropping Coverage
As costs have risen, the fraction of businesses willing to provide insurance has dropped, with percentage slipping from 66 percent in 1999 to 57 percent in 2013 – the lowest level since the Foundation began reporting the data in 1999.
Small businesses account for all of the decline in the share of companies providing insurance. While the same percentage of businesses with 200 or more employees provided coverage in 2013 as in 1999 (99 percent), the fraction of businesses with between 3 and 199 employees that offered employee health insurance declined from 65 percent to 57 percent over the same time period, the Foundation’s report reveals.
The drop in coverage has been steepest at the smallest firms. From 1999 to 2013 the fraction of businesses with 3 to 9 employees offering employee health insurance declined by 18 percent. For businesses with 10 to 24 employees, the drop was 8 percent, for businesses with 25 to 49 employees, it was 3 percent, and for businesses with 50 to 199 employees it was 6 percent, Kaiser Family Foundation data show.
The link between rising health insurance costs and declining provision of coverage is not surprising. The primary reason why small firms do not offer employee health insurance is cost, a point made by 50 percent of the survey respondents whose businesses do not offer employee health insurance. By contrast only 16 percent gave the next most common reason – because “the firm is too small” – the foundation’s report reveals.
Health Insurance and Your Piece of the Pie
Health insurance costs are taking a growing slice of employee compensation. Bureau of Labor Statistics data reveal that health insurance now accounts for 8.6 percent of employee compensation, up from 5.8 percent in 1999. The cost of health insurance is now higher than all legally required benefits (social security, Medicare, federal and state unemployment insurance, and workers compensation) combined. And health insurance costs account for nearly twice the fraction of employee compensation as retirement benefits.
Small company owners have sought to mitigate the adverse effects of rising costs by moving to insurance coverage with higher deductibles. The Kaiser Family Foundation’s data show that employees paid only a slightly higher fraction of the total cost of family coverage in 2013 than they did in 1999 (34 percent versus 32 percent). However, 58 percent of workers in businesses with between 3 and 199 workers now have an annual deductible of $1000 or more for single coverage, up from 16 percent in 1999. The fraction with annual deductibles of $2000 or more rose from 6 percent in 2006 to 31 percent in 2013.
The cost of small business health insurance continues to increase, leading owners to look for ways to cope. Only time will tell whether our policy makers’ efforts to help have alleviated or exacerbated the problems.
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