Rising Health Care Costs

Rising Health Care Costs for Small Employers

One of the biggest problems small employers face today is the steadily rising costs of health coverage for its employees. This paper covers how health care premiums have risen in double digits for the past five consecutive years, how many small businesses are forced to drop health care coverage for their employees because of the out of control costs, and what small businesses are doing to control the costs and still offer health care coverage to their employees.

The good news is that small businesses have been doing better than the overall economy. During the past few years, they have overcome rough times and developed a resiliency that is serving them well. The bad news is that the rising cost of health insurance is one issue that they may not overcome. In 2005, employees health insurance premiums climbed a bit less in than in recent years, but continually rising costs have prompted many small businesses to drop health benefits altogether. In 2005, health care premiums raised an average of 9.2 percent, falling from the 11.2 percent increase in 2004 and ending four straight years of double-digit escalation. While the earnings of a minimum-wage worker in Minnesota is at $12,792 per year, the average cost of health coverage for family coverage is $10,880, with employees paying $2713.00 of that. Premiums are 73 percent higher than they were five years ago . Also troubling is the drop in employers who offer health insurance driven almost entirely by small companies that have given up coverage. Today, sixty percent of employers offer health insurance to employees, down from sixty nine percent in 2000. Most of the employers are small businesses that are forced to drop coverage because it is unreasonably affordable. Growth in health insurance costs outpaced inflation and wage growth. Between 2003 and 2004, premiums increased an average an average of 11.2 percent, significantly faster than other economic indicators: inflation rose 2.3 percent and wages rose 2.2 percent.

There are many reasons small businesses are finding it difficult to provide coverage to their employees, with cost the most significant one. The small businesses characteristics, including whether a small firm is a component of a larger business, the composition of its workforce, and the industry of which it is a part, are the most important factors in determining an employer's ability to acquire affordable health coverage for its employees.

Despite the high cost of premiums and the cost of administering the benefit, small employers state many important business reasons for offering health insurance coverage to its employees. Most say they provide health benefits because it helps with employee recruitment, increases employee loyalty, and decreases turnover. They also note that these benefits positively affect employee attitude, performance, and health. The most important reason for offering health insurance coverage, small employers say, is that