Health Care and Micro Business
BY JON BAILEY, CENTER FOR RURAL AFFAIRS RESEARCH & ANALYSIS PROGRAM DIRECTOR

Several recent studies highlight the continuing health care challenges facing small and micro businesses. Analysis of these show health insurance is becoming an economic development issue and is harming small and micro businesses’ ability to compete and attract employees.

The most important immediate consideration in any discussion of health care benefits and small businesses is cost. The bottom-line finding in any study or survey is that small businesses are increasingly being priced out of the health care benefits game.

The Annual Employer Health Benefits survey released by the Kaiser Family Foundation and the Health Research and Education Trust in September makes that abundantly clear. The 9 percent average health care benefit premium increase last year was three times greater than the growth in wages and two and a half times greater than the rate of inflation in the same period.

Health insurance premiums have risen by 73 percent in the past five years. According to the Kaiser report, the average annual premium for family health insurance coverage ($10,880) is now higher than the salary paid a full-time minimum wage worker.

To Offer or Not to Offer?
With health care benefit premiums soaring, it’s no wonder that fewer small businesses are offering health insurance to their employees. Since 1996, the total number of employers offering health care benefits to employees has decreased from 69 to 60 percent. According to the Kaiser report, small business employers accounted for nearly the entire decline.

Less than half of the smallest business (those with less than 10 employees) offer employee health benefits. And that number is decreasing significantly – from 53 percent in 1996 (and 58 percent in 2002) to 47 percent in 2005. In just three years, nearly one-in-five of America’s small businesses dropped health benefits for their employees.

What about the Smallest of Small Businesses?
The National Association for the Self-Employed (NASE) in its recent report, Health Coverage and the Micro-business: A National Perspective, found that only 43 percent of small businesses presently offer health benefits to their employees or plan to offer such benefits in 2005. And, as with the Kaiser report, that number decreases as the number of employees decreases and as the business gets smaller.

Over three-quarters of self-employed do not provide health benefits through the business, and over 70 percent of businesses with two employees do not provide health insurance. Eighty-three percent of firms with gross sales under $50,000 do not offer health insurance.

The NASE results mean that the traditional American practice of providing health care benefits through employment is on the decline (particularly among small businesses).

This represents a shift of premium costs to the employee (at a time when premium costs are far outpacing wage increases, thus representing a real decrease in wage levels for some workers) or a shift to public programs such as Medicaid or children’s health insurance programs.

An increase in the number of uninsured, especially among working adults, is one outcome of this trend. The long-term meaning is that the traditional American system of providing health care benefits is eroding without a real alternative for affordable, comprehensive coverage in place.

Barriers to Offering Health Insurance Benefits
Really, among small business there is only one barrier to offering health insurance – cost. In the NASE report, nearly three-quarters of the businesses that did not offer health insurance identified cost as an important barrier, and 62 percent identified cost as the single most significant barrier.

Similar results were found in Nebraska. The Bureau of Business Research at the University of Nebraska-Lincoln found in its September 2005 Business in Nebraska report that “health care benefit costs” represent the primary cost reduction priority for businesses in the state.

What Can Be Done?
Health care benefits are crucial to the future of rural Americans. One can argue health insurance issues a variety of ways – social justice, moral, religious, basic health outcomes. But all of those valid arguments can be combined with the most basic of arguments – economic.

If we advocate for an entrepreneurial rural economy, we must also advocate for a health insurance system that serves entrepreneurs and small businesses (both owners and labor). To do otherwise dooms rural communities to labor challenges as workers seek employment with benefits at larger firms in larger communities, fewer entrepreneurs and businesses, and, ultimately, a less competitive economy.

Over the next year the Center for Rural Affairs will develop a plan to address these issues to benefit rural communities and rural businesses. We welcome your input on these matters.