Smaller Firms Cutting Health Insurance Benefits

The recession and increasing medical costs will likely force some small businesses to reduce health care benefits for their employees after years of expansion, the Wall Street Journal reports. A recent study by the consulting firm William M. Mercer found 13% of smaller companies and 6% of larger companies are considering ending company-sponsored health care. The Journal notes that increased health coverage by smaller companies is "seen by many as the most likely way" to reduce the number of uninsured, and in recent years, small companies competing for employees in a "tight job market" had to offer higher salaries and better benefits. But now, the Journal reports, companies facing falling sales and rising medical costs are "looking to cut anywhere they can -- and health coverage is a tempting target." In addition, some small employers are unaware that the cost of coverage is tax-deductible or that laws may restrict premiums and require insurers to offer "some policies to all companies," according to a survey conducted by Paul Fronstin of the Employee Benefit Research Institute. Fronstin said that some smaller companies "don't offer coverage because they think it is going to be more expensive than it is."

Even when companies do offer coverage, employees may decline because of premium or deductible costs. Workers at smaller companies tend to get less coverage than their counterparts at big firms and must often pay a larger share of the premium, an October General Accounting Office report found. A study released in September by the Kaiser Family Foundation and the Health Research and Educational Trust found 99% of employers with 200 or more employees offer health benefits but only 66% of their employees are covered by those plans; of companies with less than 200 employees, 65% offer insurance that covers just 59% of employees. The Journal reports that Alissa Fox, Blue Cross and Blue Shield Association executive director of policy, "says the best hope for further expansion in coverage is an expanding economy and better education of small employers about costs, tax treatment and state laws" (Bailey, Wall Street Journal, 12/18).