A shrinking number of small businesses can afford to offer health benefits to their workers, especially the smallest employers. Only 49 percent of firms with fewer than 10 workers offered insurance in 2008. And when firms do offer insurance, they often can only afford to do so by requiring employees to pay a higher share of the costs of premiums than large businesses do. Small business owners and their employees account for the largest share of the uninsured population—an estimated 27 million of the 47 million Americans without health insurance.
States have tried various approaches to help small businesses that want to offer coverage. Many states have put in “community rating” requirements, which oblige insurers to charge the same rate to each firm based on simple demographic data instead of assessing the risk of each business separately. This reduces costs for businesses with workers who have pre-existing conditions, though coverage can remain unaffordable without subsidies.
Another proposed solution is to create purchasing pools that bring together small businesses and individuals who are purchasing insurance on their own. The best-known experiment with this arrangement may be the Massachusetts Connector, though its small business connector has not yet been launched. Purchasing cooperatives also can standardize plans and simplify the process of choosing among them, reducing the hassle of purchasing insurance.
Making these arrangements work, however, requires measures that ensure they enhance risk pooling. Regulations are needed that prevent insurers from cherry picking the healthiest groups while leaving the people most likely to need services on their own. Additionally, steps must be taken to address the problem of “adverse selection,” where businesses with the healthiest workers opt out of insurance pools leaving only the more expensive employees in the insurance pool.
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