COMMENTARY | As a small business owner, there are many things that I like about the health insurance situation in the U.S., including tax deductions for health insurance premiums paid by businesses, which helps to make coverage more affordable, and the availability of options such as flexible spending accounts and Health Reimbursement Accounts that can help employees pay for health services or health insurance.
At the same time, there are some aspects of the U.S. health care market that I don't believe work well for small businesses, including the following.
Second, even if a small firm can afford to offer health insurance coverage, it seems to me that the only certainty with regard to health insurance costs is that they are likely to go up (and possibly significantly) each year. The uncertainty related to future premiums makes it more difficult for a small business to budget and plan for future investments.
Third, I believe that the high cost of health insurance in the U.S. means that many small businesses can only offer their employees high-deductible plans. In addition, they often cannot afford to provide family coverage and may have to ask employees to shoulder a large share of the premium cost. If these high costs and limitations mean that many employees don't opt for company-sponsored coverage, then offering health insurance doesn't accomplish the business's goal of providing a valuable benefit that will help it to attract and keep employees.
Fourth, there is a one-size-fits-all aspect to health insurance that pushes up costs. In particular, the list of federal or state mandated coverage (such as maternity coverage, prescription benefits, certain types of alternative medicine, etc.) that must be included in health insurance policies has grown over time, resulting in higher premiums for all, even for those who can't or don't want to use these mandated services.
Fifth, since health insurance in the U.S. is regulated by the states, premiums vary widely from one state to another. For example, according to the AHIP study cited above ("Small Group Health Insurance in 2010"), in 2010, average single coverage health insurance premiums for businesses with 50 or fewer employees ranged from as low as $302 per month in North Dakota to as high as $565 per month in West Virginia. While this may not be a significant issue for a small business that only competes with other small businesses in its state, it can be a problem for a small business in a high-premium state that must compete with a low-premium competitor from another state.
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