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Just the Facts: Small Business Health Plans
Legislation is being considered in the U.S. Congress (H.R. 525 and S. 406, the "Small Business Health Fairness Act") to expand the availability of health coverage for employees of America's small businesses. The bill would allow employers to join together through bona fide associations to buy health coverage under a Small Business Health Plan (SBHP), also known as an association health plan (AHP). As a result, small employers will enjoy greater bargaining power, economies of scale, and administrative efficiencies. SBHPs level the playing field of employer health coverage by giving participating small employers the advantages of federal law currently enjoyed by larger employers and unions.
- Small businesses have little buying power and few affordable options – five or fewer insurers control at least three-quarters of the small group market in most states (GAO, 2002). This lack of competition is contributing to double-digit rate increases for many small businesses and a resulting rise in the number of small business employees who are uninsured.
- SBHPs will provide more choice in the health insurance marketplace. In addition to self-funded plans, which will be required to comply with stringent solvency and stop-loss requirements, legislation currently under consideration will allow SBHPs to offer fully-insured plan options under a uniform set of rules across state lines. As a result, SBHP legislation will actually expand opportunities for insurance companies to serve small businesses.
- Uniform federal regulation of SBHPs will help small businesses lower their administrative costs because, by operating under federal law, AHPs can avoid the costs of complying with 50 different sets of state benefit mandates.
- SBHPs should make health insurance more affordable for small business through reduced premiums. The Congressional Budget Office (CBO) has estimated that small businesses obtaining insurance through SBHPs should experience premium reductions of 13% on average and up to 25% (CBO, January 2000). These reductions could be from $1,000 to more than $1,900 for the average family health plan offered by a small business.
- The smallest firms stand to save the most from SBHPs because their administrative costs, which account for a significant percentage of their expenses, will decrease. A January 2003 Small Business Administration (SBA) actuarial report shows that administrative expenses for insurers of small health plans make up 33 to 37 percent of claims. This compares with about 5 to 11 percent of claims for large companies' self-insured plans.
- Because insurance would be more affordable, more small firms could provide it to their employees and families. According to the CONSAD Research Corporation, as many as 8.5 million previously uninsured workers would receive coverage if this legislation were enacted into law.