The Need for Health Insurance for Small Businesses

Health insurance is a vital need of small businesses.

Since World War II, the majority of private health insurance has been purchased by employers on behalf of their employees. The tax code is structured in such a way as to encourage individuals to seek health care through their employers. As well, the economies of scale that employers are able to bring to bear with group health insurance purchases make it more affordable than individually purchased insurance. Small businesses have an interesting place in this situation with unique needs.

Risk Pools

The costs of health care for small businesses tends to be higher than larger organizations. One of the reasons for this is that their risk pools are much smaller. In a large organization the risk that any employee might become sick can be spread out. If an employee in a small business becomes ill, however, it is less likely that an insurer will be able to recoup its losses from the payments of other employees.

Salary and Benifits

Many businesses use the benefits that they offer as a way to attract new employees and to retain the ones that they already employ. This can make much more sense financially for employees, as the money they receive that is devoted to benefits such as health care is not taxed, whereas their salaries are. Small businesses often need to offer benefits in order to maintain their competitiveness with their larger rivals. Unfortunately, this can be prohibitively expensive.

Exchanges

One of the solutions that has been proposed for dealing with the health insurance needs of small businesses is the creation of health care exchanges in which many small businesses could join together to purchase health insurance. This would lower costs by combining risk pools. Various states have begun experimenting with exchanges; the Health Care and Education Reconciliation Act passed by Congress in 2010 included provisions to begin this at a national level.

Mandate

Under the health care reform bill passed by Congress in 2010, a provision was included that required all employers to begin to purchase health insurance for their employees. This provision and others have proven to be controversial and were not immediately implemented on the bill's passage. The health care needs of small businesses will likely remain a major part of the conversation as these small businesses form a major part of the U.S. economy.

References

• CNN Money: What Health Care Reform Means for Your Business; Neil deMause; March 22, 2010
• "Time Magazine"; Why Small Business Groups Oppose the Health Bills; Kate Pickert; Nov. 13, 2009
• "Christian Science Monitor"; Obama Healthcare Reform Won't Crush Small Business; Howard Gleckman; March 6, 2010
• "New York Times"; Small Business Faces Sharp Rise in Costs of Health Care; Reed Abelson; October 24, 2009
• CNN Money: The Hidden Business Killer; Patricia B. Gray; January 28, 2009
• CNN Money: What Small Business Wants; Neil deMause; July 7, 2009

Resources

• Whitehouse: Health Reform in Action
• HealthCare.gov
• Bureau of Labor Statistics: Health Care; February 2, 2010