Small-Business Health Insurance: Only The Healthy Need Apply

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Several private and public programs and countless proposals have targeted the estimated twenty-two million full-time workers and their dependents who lack health insurance. Most of these programs rely on financial incentives designed to encourage employers to provide health benefits to their employees. Unfortunately, because of existing insurance company underwriting practices, incentive-based programs would miss a significant proportion of uninsured workers. This is particularly true for employees of small businesses, which are more susceptible to these practices. To date, reports of the barriers faced by small businesses have been based largely on anecdotal information about the underwriting practices of health insurance companies. In our study of health insurance benefits in small businesses, undertaken as part of our evaluation of The Robert Wood Johnson Foundation’s (RWJF’s) Health Care for the Uninsured Program, we surveyed health insurance companies and agents. We found strong evidence to support the assertions made by several small-business interest groups that insurance companies routinely use a variety of underwriting techniques to control the amount of financial risk to which they may be exposed in the small-business market. One of the largest companies doing business in this market summarized its underwriting guidelines: “Insurability is determined by many factors, including the nature of the business . . ., and most importantly, the good health of all employees and dependents.” Redlining. Enrollment of high-risk firms is limited through a practice known as redlining, in which specific types of industries are considered ineligible for enrollment, at any premium. Redlined industries include those characterized by an older work force (over age fifty-five) or high employee turnover, those engaged in seasonal work or exposed to hazardous working conditions, those lacking an employer/ employee rela-