Small Businesses Should Band Together For Cheap Group Health Insurance
Health insurance rates are more expensive than ever, and costs are set to continue rising. A population being hit especially hard is small business owners. They do not have the leverage that large corporations or government agencies use to negotiate with health insurance companies. Small business health insurance tends to be more costly because the insurers’ risk is spread among fewer people.
Their employees are negatively impacted as a result. More employers are passing a higher percentage of health insurance premiums onto their workers. Others are switching to less comprehensive high-deductible health insurance plans, such as HSA or PPO health insurance, to save money. Some small businesses are unable to offer health insurance to their employees altogether. Meanwhile, the declining number of small businesses that pick up the entire tab for their employee health insurance are struggling under the crushing expense. It can cost over $23,000 per year to provide HMO family health insurance for one employee!
Small business health insurance costs have increased by 15% annually since, compared to the 7.5% annual increase in the general market. This makes it less likely that owners will be able to expand their firms and hire more employees. Indeed, many economists consider small companies (defined as businesses with under 50 employees) to be key drivers of economic growth and job creation. During a recession, generating jobs is paramount–but being saddled with rising health insurance overhead makes doing so more difficult.
What can be done? One option is for small businesses to join together to buy group health insurance. That could be done through existing industry associations, or new ones created specifically for that purpose. State government employees already have this advantage: for example, Massachusetts has the Group Insurance Commission, which offers HMO health insurance for an entire family at the cost of $13,600 per year. Being part of such an association may save small businesses nearly $10,000 per employee on health insurance.
Unfortunately, there are some potential pitfalls. Some fear that small businesses with young, healthier employees will band together and negotiate with health insurance companies. They will shut out other companies with older, less healthy workforces and get affordable health insurance at their expense. However, supporters of the method believe that legally requiring the associations to accept all applicants.
There is also concern that creating associations to buy health insurance at lower rates is relatively pointless. Many states already mandate that health insurance companies consider all sub-50 employee small businesses as one large risk pool, as opposed to calculating their insurance costs individually. In principle, that should make group health insurance cheaper for them, but small business owners complain that the law doesn’t work in practice.