States and Small Business Health Insurance: An Overview

Updated: April 21, 2009

Small businesses often pay more for employee health benefits because they don't have the buying power of big employers. As both workers and small employers feel the financial squeeze, fewer are able to afford to offer, or purchase, health insurance coverage.

Here is how USA Today summarized the issue in a page one story:

    Small businesses are driven crazy by soaring employee health costs, an expense that surveys show has become the biggest headache and obstacle to growth.   Now, a growing army of consultants and benefits experts are promoting new health plans and services aimed at owners desperate to rein in costs.
     Insurance brokers customize plans for small firms. Insurers cut deals for owners launching on-the-job worker "wellness" programs. Professional employer organizations combine dozens of small firms into big employee groups for discounted rates. And Health Savings Accounts (HSAs) crafted by Congress are now part of small firms' arsenal.
     Congress (in March 2006) moved closer than ever to passing health care legislation to let small companies band together across state lines for discounts. President Bush endorsed the legislation again last week. But it's been debated for years without passage. [USA Today, 4/19/06]

For state policymakers, there is more to the story. The percentage of the nonelderly population (under age 65) with health insurance coverage declined in 2004 to a post-1994 low of 82.2 percent. However, it is the smallest of "small employers" that provide coverage least often - 72 percent of those with 10 to 24 employees, and only 47 percent of those with three to nine employees.

For policymakers seeking responses, some of the following resources may be of use. Note that fairly diverse strategies have been tried and proposed. These include:

Health Savings Accounts (HSAs) and High Deductible Health Plans.
Consumer-driven health insurance strategies such as cost and quality transparency.
Exemptions or exceptions from state mandates.
Tax credits and tax deductions for insurance costs.
State Health Purchasing Pools or Cooperatives.
MEWAs (Multiple Employer Welfare Arrangements) and AHPs (Association Health Plans).
State High Risk Pools.
Public-Private Partnerships, including subsidies.
Universal health plans that emphasize small employer coverage.
Small Group Insurance Reforms.

NCSL ONLINE RESOURCES

State Legislation on HEALTH SAVINGS ACCOUNTS- NCSL report, updated 4/09.
State COBRA Expansions for Small Businesses. 39 states and DC expand COBRA regulations to small businesses (2-19 employees). The 2009 federal stimulus law expands benefits and offers to new opportunities for state coordination. 4/09.
State Programs to Subsidize or Reduce the Cost of Health Insurance for Small Businesses and Individuals - from NCSL's Primary Care Project, 2008.
"State Legislation Relating to Disclosure of Hospital and Health Charges" - NCSL report, updated 3/09.
"Consumer Driven Health Insurance: New State Solutions in 2006?" NCSL session at Spring Forum, April 7, 2006. From corporate boardrooms to the President's State of the Union, the idea of health savings accounts has attracted attention, support and nagging concerns. In 2005 at least 26 states enacted laws directly affecting health savings accounts and their associated high-deductible health insurance plans. These market-based tools are aimed at lowering premium costs and requiring increased consumer responsibility. Yet the "bare bones" policies often associated with such plans may leave a family with hefty charges for routine or not-so-routine medical services. This "mini-summit" 2 hour session examined facts, opinions and some unknowns.
Funded in part by the Robert Wood Johnson Foundation and the NCSL Critical Health Areas Project CHAP). Speakers:

Paul Fronstin [PowerPoint download / slides] Ph.D., Director, HRET, Employee Benefit Research Institute

Tracy Cassidy Watts [PowerPoint download / slides], Principal, Healthcare and Group Benefits, Mercer Co.

Simmi Singh [PowerPoint download / slides], VP, Cognizant Technology Solutions, Chicago, IL
"The Changing Face of the Uninsured" - NCSL State Health Lawmaker's Digest
> Small Business Health Fairness Act of 2005 (H.R.525, S.406) - In April 2006, this Congressional bill proposed to amend the Employee Retirement Income Security Act of 1974 (ERISA) to provide for the establishment and governance of association health plans (AHPs), which are group health plans whose sponsors are trade, industry, professional, chamber of commerce, or similar business associations, and which meet certain ERISA certification requirements. See page 16 linked above; Update: On May 11, 2006 this bill "went down in defeat on the Senate floor." The Senate leadership needed 60 votes to end debate on the bill, a vote for “cloture” but the vote failed, 55-43. Read NCSL's Federal Affairs staff summary and activities report on the 2006 measures in the U.S. Congress. April 2006.

ADDITIONAL EXPERT RESOURCES AND OPINIONS
NOTE: NCSL provides links to other Web sites from time to time for information purposes only. Providing these links does not necessarily indicate NCSL's support or endorsement of the site.
Small Business Health Insurance, Brief Analysis, by Daniel Wityk, Feb, 2009, National Center for Policy Analysis. (http://www.ncpa.org/pdfs/ba642.pdf)
Small Group Health Insurance Market Guaranteed Issue, 2007 - Kaiser Survey
Small Group Health Insurance in 2006: A Comprehensive Survey of Premiums, Consumer Choices, and Benefits (Slides) A comprehensive survey of member companies offering coverage in the small group health insurance market, with premium and benefit data from more than 650,000 small groups covering 4 million workers and 3.2 million dependents. Published by AHIP, 9/06. PDF, 28 pp.
"Small Business Is Latest Focus in Health Fight" - NY Times, By Reed Abelson - Front Page 7/10/08 (Includes NCSL material)
Employer Healthcare Mandate Would Wipe Out 1.6 Million Jobs , statement by NFIB, 1/28/09.
"Employers Willing to Do More to Cover Workers" - Despite fast-rising health care costs, employers that offer health benefits to their workers say they are committed to the current employer-based health insurance system. Commonwealth Fund report, 11/06.
"Major Changes in Benefit Design: A Plausible Way to Control Costs?" AcademyHealth 11/06
"Private Health Insurance: Number and Market Share of Carriers in the Small Group Health Insurance Market in 2004," GAO provides updated information on the number of health plan carriers licensed in each state and the carriers' market share. The report notes that the median number of licensed carriers in the small group market per state was 28, while the median market share of the largest carrier was about 43% GAO, 10/05.
Private Health Insurance: Number and Market Share of Carriers in the Small Group Health Insurance Market, 2002, 3/02 (Use for comparison to 2004)
"Small Employers and Health Benefits: Findings From the 2002 Small Employer Health Benefits Survey.” EBRI Issue Brief no. 253, 2/03.
"Coping with the health insurance blues" - Chicago Tribune, 5/16/06
Small Employer Health Buying Pools - State Vendor List (November 2005)
MINNESOTA: Small Group and Individual Health Insurance Markets – Information on trends in Minnesota’s small group and individual health insurance markets. It includes information on enrollment trends, premium growth, benefit sets (deductibles, copayments, etc.), and health plan market shares. (Update: July 2007) PowerPoint | PDF [31 pp]

STATE EXAMPLES
Colorado enacted the Fair Accountable Insurance Rates Act, H 1389; it requires individual and small group health insurance carriers to file with the Commissioner of Insurance a detailed description of their rating, underwriting and renewal practices; requires approval by the commissioner for certain rate increases. It was signed June 5, 2008.
Florida Rolls Out Health Plan Comparison Web Site -Florida has launched an insurance comparison Web site that allows residents to check the benefits and premiums for small employer health plans offered in the state, the South Florida Business Journal reported on June 26, 2006.
Kentucky's House passed HB 445 & HB 380 in 2006, as the Insurance Coverage, Affordability and Relief to Small Employers (ICARE) Program to make health insurance more affordable for small employer groups; including state subsidies, aimed as a four-year pilot project for employer groups with 2 to 25 employees.
Maryland: On November 19, 2007 the Working Families and Small Business Health Coverage Act (Senate Bill 6) was signed into law, offering subsidies to small businesses to offset the cost of providing coverage to employers and expanding Medicaid eligibility to certain adult populations. Provisions included in the new law include:
- The provision of subsidies to small employers and employees of small employers if the employer: a) has not offered a health benefit plan within the prior 12 months; b) has two to nine eligible employees; c) meets certain low-wage requirements to be established through regulation; d) establishes a Section 125 payroll deduction plan to allow for pre-tax premium contributions; and e) agrees to offer a wellness benefit that is designed to prevent disease, reduce poor clinical outcomes, and promote health behaviors and lifestyle choices.
- The expansion of Medicaid eligibility up to 116 percent of the Federal Poverty Level (FPL) for parents and caretaker relatives with a dependent child living at home;
- The phase-in over four years of Medicaid eligibility up to 116 percent FPL for childless adults—enrollment may be capped and benefits may be limited based on available funding; and
- The legislation is financed through a combination of general funds, hospital uncompensated care savings, a one-time surplus from the state's high risk pool, and federal funds. The availability of general funds for the childless adult expansion depends on the adoption, through public referendum, to add a new article to the Maryland Constitution to authorize video lottery terminal gaming (slot machines) in the state.
- The state wanted to focus on its smallest businesses because that is where the lack of health insurance is most acute, says John Colmers, secretary of the Maryland Department of Health and Mental Hygiene. Reimbursement goes directly to the health insurer, so agents still get full commission on their sale, but the employer gets a bill that's half the size it would otherwise be.
- As of January 2009, about 550 individuals are enrolled; the department is hoping to enroll 1,500 businesses during the year.
- In addition, the Governor, through an October 2007 executive order, created the Maryland Health Quality and Cost Council.
  > Maryland: CNN Money news article, 1/09.
Montana businesses could be in line for health insurance. Insure Montana is the program launched in January 2006 to begin addressing the problem of uninsured Montanans. This is a two part program that is designed to assist small businesses with the cost of health insurance, whether they have provided health insurance previously or not. 1) Small businesses with 2-9 employees that are currently providing health insurance to their employees are eligible for refundable tax credits. 2) For businesses that were previously unable to afford health insurance for their employees, Insure Montana provides health insurance coverage through a small business purchasing pool. Over 1550 small businesses were enrolled and 10,000 lives were covered as of August 2007 and a new applicants waiting list was tarted due to funding constraints.
As of January 2009, both the tax credit and purchasing pool programs are at full capacity because of limited funding. Small businesses applying for either are being put on a waiting list. The program is entirely funded through increases in Montana's tobacco tax, but that's not enough. The state auditor's office has requested additional funding - about $12.5 million for the next two years to cover those waiting and new applicants.
> Montana: CNN Money news article, 1/09.
New H ampshire governor signs HealthFirst insurance plan. The HealthFirst initiative will require major insurance carriers to offer a standard wellness plan for businesses with up to 50 employees. Premium costs will be controlled by focusing on prevention, managing chronic conditions and promoting best practices. A committee whose members include small business owners will design the wellness plan with a target premium of 10 percent of the prior year's median wage, currently about $262 a month. An actuary will assess whether the plan can be offered for the target price before insurers are asked to provide it, starting October 2009. (May 2008)
> The New Hampshire Small Employer Health Reinsurance Pool selected Pool
Administrators Inc. as the administrator for the New Hampshire Small Employer Health Reinsurance
Pool. Small Employer Health Carriers are able to reinsure with the pool effective January 1, 2006. [memo online]
New Mexico State Coverage Insurance - a 2005 law for uninsured employed adults. A unique public–private partnership that provides affordable health insurance products for small employers (with 50 or fewer employees) who have previously been unable to afford coverage for their employees. Employers are expected to contribute $75 per employee per month, and employees pay premiums up to $35 per month and copayments. Interview by SCI/AcademyHealth.
New York's HealthPass offers small businesses and sole proprietors a wide range of attractive health insurance options that enable eligible employees to choose a plan that best fits their medical needs and budgets. HealthPass serves small businesses and non-profit organizations in New York City, Long Island, Westchester, Rockland, Orange, Dutchess, and Putnam counties. More than 2,500 employers currently offer HealthPass plans to their employees and families. It operates as a partnership among the New York Business Group on Health, the City of New York, and the health insurance industry; enrollment surpassed 20,000 members as of 7/9/2008. [article 7/08.]
Healthy New York: a program to provide publicly-funded or other type of financed reinsurance for private coverage to assume a portion of insurer's high-cost claims. The state subsidizes cost for high-cost people using more the $5,000 per year, with the goal of lowering premiums for all, based on the knowledge that 20% of people account for 80% of health care spending. The state requires all HMOs to offer the Healthy NY product. Applicants may now choose a benefit package with a limited prescription drug benefit or one without prescription drugs. Small firms with low-wage workers, low income self-employed and uninsured workers without access to employer sponsored insurance may enroll.
Ohio health care needs fix. (Enquirer 5/14/06) Rep. Jim Raussen reported that SB 5 initially would have allowed small employers to offer health care plans that didn't include all of the state's coverage requirements, in hopes of creating a more affordable health insurance product for small businesses. Those so-called "mandate-lite" provisions have been removed from the bill because other states' experience showed few businesses bought the product, and the savings were only about 3 to 5 percent, Raussen said. Senate Bill 5 now mostly includes provisions to allow small businesses to create alliances to buy health insurance. This bill became law in March 2007.
Oklahoma expanding small business health insurance program. Governor Henry signed a law on June 4, 2007, targeting working Oklahomans by expanding "Insure Oklahoma," a program that helps small businesses provide health insurance for their employees. Under House bill 1225, the law expands eligibility in the program from businesses with 50 employees to those with 250 or fewer workers. Under the program, the state pays 60 percent of the insurance costs, the employer pays 25 percent and the employee pays the remaining 15 percent. The bill also would expand eligibility in the program to workers who earn 185 percent of the federal poverty level to a 250-percent threshold. As of September 2008, the program has about 10,000 employees enrolled — most of whom were uninsured before — that is far below expectations for a program that could accommodate four times that amount.
The Oklahoma Employer/Employee Partnership for Insurance Coverage (O-EPIC) program was created to assist small businesses in offering their employees health insurance. Participating employers with 250 or fewer employees must contribute 25 percent of the employee’s premium and must offer a qualified O-EPIC plan. The state funds 60 percent of the insurance costs, and the employee pays the remaining 15 percent. Participating employees have incomes below 250 percent of poverty. Qualifying O-EPIC plans are required to cover state-defined basic benefits and have maximum out-of-pocket spending limits. O-EPIC online.
Rhode Island Creates First "Stand-alone" Required Cafeteria Plan. On July 3, 2007 Senate Bill 448 was signed into law, establishing a state-wide requirement that employers offer employees the opportunity to buy health insurance with pre-tax income. The state Insurance Commissioner notes that 39% of Rhode Island workers do not have access to employer-sponsored insurance. Neither the state nor employers are required to contribute to the purchase price, but the state estimates a savings of "up to 40 percent" of the premium cost, depending on tax bracket. [7/3/07]
South Carolina: Governor Mark Sanford on February 19, 2008 signed a bill, S.588 (Act No. 180), that gives small businesses more flexibility to provide health insurance for their employees. The bill allows a group of at least 10 small businesses to join together and negotiate cheaper insurance rates than an individual business. Current state law allowed businesses to join together for health insurance but sets a minimum of 1,000 employees. The new law defines small business as 2-50 employees, and permits an employer of one to qualify subject to separate pricing terms. [news release 2/19/08]
In Tennessee, SB 4014 of 2008 allows small businesses of 2 to 50 employees to pool together for the purpose of negotiating better insurance rates, creating a small business cooperative. The bill is designed to encourage more small employers to purchase health insurance and to give them predictability and stability in health-insurance rates. It was signed May 28, 2008.
> CoverTennessee - A market based public/private partnership plan for small employers and uninsured workers with incomes below 250 percent of FPL. ($25.5k /yr for 1; $51.6k for family of 4). Cover Tennessee is guaranteed access to basic, major medical coverage for $150 a month with the cost shared equally by the individual, employer, and state government. Tennessee tripled its tax on cigarettes to produce $239 million in new revenue for FY 2008. The premium for coverage is shared among the employer, employee, and state, with each party contributing 1/3 of the costs of the premium. CoverTN plan benefits are "very limited in nature compared to traditional insurance. For instance, these plans do not have an out-of-pocket maximum, and therefore do not protect against the potential of catastrophic medical costs. In other words, there is no limit to the amount of medical bills a member might have to pay for a major illness or injury, such as disease treatment, or injuries sustained in an automobile accident for example. Therefore, CoverTN is not a low-cost alternative to traditional insurance coverage."
2008 Expansion: Beginning Jan. 1, 2008, more Tennesseans will be eligible for CoverTN, the premium subsidy program for the working uninsured. When CoverTN was launched nearly six months ago, it covered workers who earned up to $41,000 in small businesses with 25 employees or less. The state pays one-third of the premiums, the employer may choose to pay one-third and the employee one-third. If the employer chooses not to participate, the employee may pay two-thirds. Premiums for the basic benefit plan are about $150 a month and coverage is portable. The state plans to expand the program by opening it to individuals with annual incomes of up to $43,000, and in companies with up to 50 employees. About 13,000 Tennesseans are currently enrolled, and administrators hope to increase enrollment to 100,000 by 2010.
In Texas in 2007, the Senate passed and a House committee gave favorable recommendation to SB 922, which would encourage counties to test models for small business coverage. Intended to maximize flexibility and local control, the legislation would enable county commissions to establish local or regional health-care programs, which could offer insurance or health services. The state Health and Human Services Commission would use general revenues to provide start-up grants to seven of these programs, which could include health savings accounts and high-deductible plans. The grants would average $150,000 each, for a total cost of $1.05 million in FY 2008. In addition, the local/regional programs could apply for additional funds from a “health opportunity pool,” created under an 1115 waiver from Medicaid. It is expected that employers, employees and the state would jointly share the cost of premiums or health-care services. The programs would be required to allow any individual who receives state premium assistance to enroll. The bill did not pass the House.
> Texas: Incentives could boost employee health care; Senate studies tax breaks to help small firms provide insurance. The incentive under consideration will probably be in the form of larger tax deductions for companies that offer health care plans to their employees. -Dallas Morning News 2/1/07.
Utah: Program Assists Uninsured to Get Health Coverage. Because of passage of HB276 in 2006, the Utah Department of Health launched a new rebate program for health insurance premiums that would reduce the number of uninsured citizens in Utah by helping workers pay for their employer- sponsored health insurance. Qualified workers can receive rebates up to $150 per adult and $100 per child to help pay the monthly premium of an employer-sponsored health care plan. HB276 provided $267,000 in state funding for the program and allows matching federal Medicaid money.
WashingtonHealth Insurance Partnership. 2007 law, HB 1569 establishes the Washington Health Insurance Partnership. Similar to the “Connector” mechanism created in Massachusetts, the Partnership will offer benefits administration to small employers that have at least one employee who earns less than 200 percent of the federal poverty level (FPL). The Partnership also will provide sliding-scale premium subsidies to individuals who earn less than 200 percent of the FPL. It also authorizes evaluating the inclusion of additional health insurance markets in the health insurance partnership and studying the impact of health insurance mandates. Became law 5/2/07 as Chapter No. 2007-260.

West Virginia Small Business Plan - A 2004 law (S.B. 143) intended to help uninsured small businesses provide coverage for their employees. This is a public-private partnership between the West Virginia Public Employees Insurance Agency (PEIA) and participating insurance carriers by allowing carriers access to PEIA's provider reimbursement rates. The design of this plan included coverage in both primary care and major medical at a cost that is 20-25 percent lower than the retail rates.

STATE SUBSIDIZED ENROLLMENT: RESULTS ARE MIXED

In the summer of 2007, NCSL compiled an informal survey summary of actual numbers of residents who enrolled in state initiated small-business programs. Enrollment experience is different state-to-state. Historically, employer participation in government created subsidized programs has not been extensive. States have had more success with enrolling individuals at the employee level and not going through the employer. Participation is also very much related to outreach and marketing. Here is some information collected by NCSL's Primary Care Project over that last year. The following are examples:

Iowa

Below is a short description of the Medicaid (1115 Waiver) expansion program, Iowacares. http://www.ncsl.org/programs/health/iamedicaid.htm. The program started in May of 2005 and the expansion population is now up to about 17,000.THe state appropriated about $65 million to the expansion program, and that money has been dived up among different programs. The Medicaid Director's office can provide recent materials; tel. (515) 725-1123. Details are available on the state web page on Iowacares: http://www.ime.state.ia.us/IowaCare/index.html

MinnesotaCare is a Medicaid program with sliding scale premiums for uninsured families and adults below 275% FPL for families/175% childless adults. They cover about 135,586 people.

Montana's Insure Montana program for very small businesses has been relatively successful. It is very limited eligibility and has capped enrollment.

Healthy New York has anywhere between 110,000 and 200,000 people enrolled in their program. A small percentage of the people eligible but a good number of enrollees.

Adult Basic Plan of Pennsylvania

Provides subsidized health insurance coverage to low income adults under 200%. State contracts with four insurers to provide a basic benefit package.Enrollment is capped. Enrollment as of July 2006 was 50,600 people with over 100,000 people on a waiting list.

The Utah Primary Care program which is a Medicaid program that targets uninsured adults and provides primary care coverage (includes sliding scale premium and copays) is often close to the enrollment cap of 25,000.

Basic Health in Washington is a state-sponsored insurance product with sliding scale premiums offered through private managed care plans to individuals and families with incomes below 200% of FPL. The program covers about 100,000 enrollees each month with about 30,000 people on a waiting list.

Compiled by R. Cauchi, NCSL Health Program-Denver. Enrollment data compiled by Laura Tobler.

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SMALL COMPANIES,
BIG COSTS

Small businesses often pay more for employee health benefits. Small employers in 2005 were:


Hit with bigger rate increases:

3 to 199 workers	9.8%

200 or more workers	8.9%

Less likely to insure employees (Offering health benefits, by firm size):

3 to 9 workers	47%

10 to 24	72%

25 to 49	87%

50 to 199	93%

200 or more	98%

More likely to shop for new insurers (Considered new plan, by firm size):

3 to 199 workers	60%

200 to 999	56%

1,000 to 4,999	40%

5,000 or more	35%

Source: © Kaiser Family Foundation; reprinted in USA Today 4/19/06

States and Small Business Health Insurance: An Overview

NCSL ONLINE RESOURCES

ADDITIONAL EXPERT RESOURCES AND OPINIONS

STATE EXAMPLES

STATE SUBSIDIZED ENROLLMENT: RESULTS ARE MIXED

Featured Links