Small Employers and the Provision of Small Group Health Insurance Coverage

Abstract

mployers are the main source of health insurance for North Carolinians. In 2004, more than 60% of non-elderly North Carolinians accessed health insurance coverage through an employer-sponsored health insurance program. However, small businesses are much less likely to offer health insurance coverage than larger business. In 2002 and 2003, only 29% of North Carolina firms with fewer than ten employees offered health insurance coverage, compared to 68% of firms with 10-24 employees, 79% of firms with 25-99 employees, and 90% of firms with 100 or more employees. One reason that fewer small firms offer health insurance coverage may be due to higher health insurance premiums, on average, for smaller firms. In North Carolina, 2002-2003 the average annual health insurance premium for workers in small firms with fewer than 50 employees was $3,597, compared to $3,206 for firms with more than 50 employees. Small employers, those with 50 or fewer employees, are subject to health insurance rates set by state “small group” rating laws. These laws were modified in the 1990s to reduce the variation in premiums charged to small employers with similar employment characteristics. Small group rating laws are used to spread the health risks of small employer groups across a larger pool of workers. However, despite these laws, small-firm premiums continue to vary widely, and health insurance premiums are still higher on average for small firms than for larger firms. Reasons for (Not) Offering Health Insurance