Health Benefits: Going, Going, Gone

August 26, 2005
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GRAND RAPIDS — A new report by the U.S. Small Business Administration Office of Advocacy reveals that employees of small businesses have access to fewer benefits than do employees of large companies, but firms of all sizes are providing benefits at a declining rate.

“Companies of all sizes have reduced the availability of health insurance to their employees due to the increasing cost associated with benefits in recent years,” according to the just released SBA study, “Cost of Employee Benefits in Small and Large Businesses.”

The study culled data from the Medical Expenditure Panel Survey (MEPS) by the U.S. Department of Health and Human Services’ Agency for Health Care Research and Quality, using MEPS data from 1997, 1999 and 2002. That information was supplemented with other databases, such as Statistics of U.S. Businesses.

The authors, Joel Popkin and Co., found that 40 percent of employees in the smallest firms are eligible for health coverage while slightly more than 77 percent of employees in the largest firms were eligible.

The report indicates that health insurance is not as widely available as it was prior to the 2001 recession. In 2002 a smaller percentage of employees were eligible to participate in their employer’s health insurance plans than had been eligible five years earlier, and that held true for businesses of all sizes.

Furthermore, from the mid-1990s through 2002, small companies experienced a faster increase in health insurance premiums than did large companies. The authors also note that small firms tend to pay more in administrative costs per participant than their larger peers, and the smallest firms often make substantially larger contributions per participant than the largest firms.

Overall, more firms of all sizes offer defined-contribution plans rather than defined-benefit plans, the study revealed.

More recent data paint a clearer picture of employers’ actual cost in providing health insurance benefits and employees’ contribution to the cost.

U.S. Department of Labor’s Bureau of Labor Statistics says that U.S. businesses paid an average of $7.40 in benefits for each hour their employees worked in September 2004.

According to data compiled by the nonprofit, non-partisan National Coalition on Health Care:

  • The premiums for employer-based health insurance rose by 11.2 percent in 2004, the fourth consecutive year of double-digit increases.

  • All types of health plans — HMOs, PPOs and POSs — demonstrated double-digit increases last year.

  • The annual premium that a health insurer charged an employer for a health plan covering a family of four averaged $9,950 in 2004. Workers contributed an average of $2,661, or 10 percent more than they spent in 2003.

  • The annual premium a health insurer charged an employer for single coverage averaged $3,695 in 2004, and workers contributed an average of $558.

  • Premiums for U.S. employer-sponsored health insurance have been rising five times faster on average than workers’ earnings since 2001.

  • Employee spending for health insurance coverage increased 126 percent between 2000 and 2004.

  • Employees’ share of health insurance costs increased 63 percent for single coverage and 58 percent for family coverage since 2001.

  • Health insurance premiums are expected to rise to an average of more than $14,500 for family coverage in 2006.

The Kaiser Family Foundation and the Health Research and Educational Trust 2004 Employer Benefits Survey sheds additional light on the subject. The Kaiser/HRET survey of nearly 2,000 randomly selected public and private companies found that the percentage of workers receiving health coverage from their employer fell from 65 percent in 2001 to 61 percent in 2004.

According to the survey: “Employers offering health benefits continue to vary substantially by firm size: only 52 percent of the smallest companies (3 to 9 workers) offer health benefits, while 74 percent of firms with 10 to 24 workers and nearly all firms with 50 or more workers offer health benefits.”

The authors note that among firms offering coverage, 56 percent said they had shopped for a new health insurance plan in the past year. Of those firms, 31 percent reported they had changed insurance carriers in the past year and 34 percent reported they changed the type of health plan offered.

Nearly 80 percent of covered employees with single coverage and more than 90 percent of covered employees with family coverage made a contribution toward premiums in 2004, according to the survey. On top of their premium contribution, most workers made additional payments when they used health-care services.

Small (3 to 199 workers) and large (200 or more workers) firms contribute about the same amount toward individual coverage, but large firms contribute significantly more than small firms toward family coverage, according to the survey results.

“This year’s results also raise the question of whether smaller firms will continue to support family coverage for their employees as costs continue to rise,” the report notes.

Asked what changes they might make in the near future, nearly 52 percent of large firms in the Kaiser/HRET survey and 15 percent of small firms said they’re “very likely” to increase employee contributions.    

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