How Can Small Businesses Combat Rising Health Care Costs?

How Can Small Businesses Combat Rising Health Care Costs? Nick Ghiotto Stephanie Horvath

Small Businesses • “One that is independently owned and operated and which is not dominant in its field of operation” • Small Business Act • Most small businesses contain • < 500 employees • < industry average revenue • Study by Small Business Administration found • Represent 99% of all employers in U.S. • Employ 50% of private workforce • Provide 75% of new jobs

US Health Care Costs • US has the most expensive health care system in the world • In 2002, the United States spent $5267 per person for health care • The second highest, Switzerland, posted a per capita figure of $3445 • Employers feel the wrath of these high costs • Insurance premiums can be a devastating expense

Drivers of High Costs • External factors • State of the economy • Absence of a free market • Encourage competition • More responsible patients • Advanced medical technologies • More costly to administer • Market power of health care providers

Dealing with Costs • Rising health care costs • Decrease in health care benefits for employees, especially those of small businesses • Over half of the uninsured (27 million) are employees of small firms

Competing with Large Firms • Pay higher costs for coverage • Have less bargaining power • More vulnerable to increases • Therefore, cut health care coverage, jobs, and resources • More and more employees are paying more for coverage

Solutions • Offer plans with high deductibles, co-insurance, co-payments • Supplement plans with Health Reimbursement Arrangement (HRA) • Employer offers to cover initial medical expenses  Lowers costs for employers

Solutions (cont.) • Allow employees to opt out of plan • Financial Incentive • Flexible Savings Accounts • Market Based Pooling • Employers join to purchase packages at bulk rates • Insurance companies compete for business

Government Involvement • Bills proposed in Congress • Bill S.1955, “The Health Insurance Marketplace Modernization and Affordability Act of 2005” • Bill H.R. 241, “Small Business Health Fairness Act of 2007” • Hearing Discussions • State Government • Some states like Massachusetts offer coverage to every resident • SCHIP: coverage for all children of state

Health Savings Accounts • HSAs were created by Medicare legislation signed into law by President Bush on December 8, 2003 • Designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis • Make health care more affordable and accessible • Have become increasingly more popular since their introduction

HSAs cont. • Beneficial for small businesses • Lower costs • In some cases, better coverage • Employee deductions stay constant • With a slightly higher deductible • Also allowing them to access their account for medical expenses that may not have been in previous plans

HSAs Drawbacks • For small businesses, HSAs can be very time consuming to set up • Businesses without HR departments face the additional challenges of filling out the correct paperwork and communicating the change to staff

Conclusion • US health care system is in trouble • Rising Costs are troublesome • Small businesses are becoming unable to offer coverage for employees • HSAs are relatively new, but do they work??? • Only time will tell • Hot topic in 2008 Presidential Election

Questions???

How Can Small Businesses Combat Rising Health Care Costs?