Small Business Values Healthcare Despite Rising Costs

January 24, 2003 ( - Nearly one in five small employers made changes to their health benefit programs during the last year - changes that generally shifted more responsibility to their workforce.

The Employee Benefits Research Institute (EBRI) notes that among employers reporting a change:

  • 65% – increased deductibles and copays
  • 35% – switched insurers
  • 30% – increased employees’ share of the premium
  • 29% – cut back on the scope of the benefits.

However, roughly one in four increased the scope of benefits offered.   And, despite double-digit health care premium increases and a tough economy, the majority of small businesses still see merit in offering their employees health care benefits, according to the report.

In the2002Small Employer Health Benefits Survey (SEHBS),EBRI foundthe cost of employee-only coverage averaged $3,392 for the employers in 2002, up 13.1% from $3,008 in 2001.   The study found that the increases were particularly steep for 28% of the companies who saw premiums skyrocket by at least 20%.

Premium “Pricing”

Still, the vast majority (72%) saw premium increases below the 20% level, and a full quarter of respondents saw no change in their premium.   Additionally, 23% report increases between 10% and 20%, 18% reporting premium increased less than 10% and a very small percentage, 6%, saw their premium cost go against the gain.

When asked at what threshold premium cost increases would cause their companies to change or drop coverage, 23% think their company would change coverage and 3% think it would drop coverage if the cost of health insurance in general were to increase by an additional 5%.   With premium increases of 10%, slight fewer than half (42%) think their firm would change coverage and 7% think it would drop coverage.   However, when faced with a 15% increase in premiums, 54% think their firm would change coverage, while 15% think it would drop coverage.

Sound “Effects”

Among the 502 small employers with health benefits responding to the survey, 52% said that offering health benefits helps increase loyalty and reduces turnover:

  • 45% said it helps with employee recruitment
  • 34% said employees demand or expect it
  • 28% cited increased productivity

However, the vast majority, 77% of the respondents, put aside the financial reasons and said the major reason for offering health benefits is that it is “the right thing to do.”  

Beyond the “push” for benefits, EBRI found that two-thirds of small employers that do offer health benefits noted a positive impact on the overall success of their business, with:

  • 71% seeing an impact on recruitment,
  • 71% an influence on retention and
  • 69% noting an impression on employee attitude and performance.

Additionally, 66% report a positive effect on the health of their employees and the overall success of the business, and more than half (54%) reporting a positive bearing on absenteeism.

However, the rising cost of health benefits has affected their business in other ways. Overall, 43% of the employers reported that the cost of health benefits affected some aspect of their business other than the actual health benefits. Some employers reported that they reduced or eliminated pay, raises or bonuses, reduced other employee benefits, or put off equipment and other purchases. Others reported that they either were not able to hire needed workers or existing workers were laid off.

"No" Impact

On the flip side of the coin, EBRI found that most (74%) of the 498 small employers without health benefits see no negative impact on their business.   More than two-thirds said the lack of benefits had no impact on employee recruitment, 70% found no adverse reaction to employee retention, 75% no negative bearings on employee attitude and performance, 76% no impact on the health of employees and 80% no impact on absenteeism.

But when it came to turnover, EBRI found that6% of those employers not offering health benefits reported high turnover of workers, compared with just 2% among employers offering health benefits. Further, 53% of employers not offering health benefits reported that they experienced little turnover, compared with 62% among employers offering health benefits.

Why Nots

Financial concerns, together with the availability of coverage elsewhere, are the reasons most frequently mentioned for not offering health benefits to employees.   A majority of employers not offering health benefits (79%) report that a reason for the lack was because their business cannot afford to offer them, up from 69% in 2000. Additionally, 68% report that revenue is too uncertain to commit to offering a health benefits plan, up from 56% in 2000, and 61% report that their company does not have a plan because employees have coverage elsewhere, which is unchanged from 2000.

Survey findings also show that 21% of the employers not offering health benefits reported offering them some time within the last five years, with more than 40% reporting that the business decided to drop benefits because of the cost.

However, many small employers that do not offer health benefits are potential purchasers. EBRI found 11% are either extremely or very likely to start offering health benefits in the next two years, and 22% are somewhat likely to start offering health benefits.