Small-business Health Insurance: a Symptom of the Diseased American Health Care System ... What Is the Cure?
| Citation | Vol. 69 No. 2 |
| Publication year | 2018 |
Small-Business Health Insurance: A Symptom of the Diseased American Health Care System ... What is the Cure?
M. Catherine Norman
[Page 533]
Small businesses are independent establishments wholly owned by an individual, a family, or business partners. Small businesses are vital to local and national economies. In the aggregate, they have a very large impact on the nation, but individually, they are truly small.1 As such, the influence of small businesses could easily be overlooked, especially when health insurance legislation's focus is on individuals and large businesses.
The current American health insurance system is not sustainable because it increases the burden on large employers while providing a potentially untenable situation for small employers,2 does nothing to
[Page 534]
control rising medical costs, and does not provide universal insurance coverage. Specifically, the way the health insurance system works for small employers highlights these problems by providing optional guidelines with little assistance and no standardization for coverages among employers. Employers are then left to choose between providing potentially unaffordable coverage or forcing themselves and employees to find insurance on the individual exchange, which might not be any more affordable.
This Article explains the current health care and insurance laws and regulations, how it affects small businesses, why it is not a solution for the future, active proposals in Congress, and viable options for the future of small business health insurance.
A. Health Care or Health Insurance
Health care, health insurance, universal care,3 universal coverage, affordable care, and affordable coverage are terms commonly used to discuss the current issues with the American health system and possible "solutions." The importance of these terms depends on context. Although used interchangeably, health care and health insurance are not the same.4 Simply, health care5 includes the physical services provided in preventing and treating health issues, while health insurance6 is what pays for care for most Americans.7 Equating the two ideas has created a
[Page 535]
barrier to certain types of health care affecting many small employers and their full-time employees because there is a gap between subsidized insurance and full-cost insurance payments.8
Health care has not seen the same "successes" in increased access as health insurance.9 Despite the multitude of hospitals and health care
[Page 536]
centers,10 there remains a shortage of health care.11 Time required to travel to the health care provider is a major bar to the consumption of health services,12 and the travel time and distance can make a doctor's visit financially unaffordable.13 Hospital closures should be a major concern because individuals who do not have a primary care physician will go to the local hospital for care.14 Additionally, medical emergencies are much less likely to have positive outcomes when an individual must travel hours to see a health care provider.15
The issues with equating health care and health insurance are very important to the future of small-employer health insurance because those issues drive up the costs of health care. Individuals will pay more. Self-insured small employers will pay more and more often, as the cost of even a primary care visit at a hospital could be above an employee's
[Page 537]
deductible. Reinsurance16 could become more expensive as insurers recognize the increased costs associated with offering that coverage for small employers, possibly leaving this option unaffordable for more small employers. Further, community ratings for Small Business Health Options Program (SHOP) marketplace17 plans could very well reflect the increase in cost for services, leaving small employers and their employees with increased premiums without increased benefits.
For better or worse, employer-provided insurance appears to be here to stay, so the first step in ensuring affordable health care for Americans is ensuring affordable health insurance coverage for Americans. Further, small businesses are an important and often overlooked part of that goal of universal coverage.
B. How Health Insurance Became Important
The employer-provided insurance system that provides coverage to most individuals in the United States is a historical accident.18 For most of history, hospitals were not places for the treatment of injuries and illness across all socioeconomic statuses; those who could afford treatment received it at home by private physicians.19 Hospitals were for the indigent, and patients generally did not leave a hospital alive. The advent of modern medicine not only revolutionized care, but medical schools and hospitals as well. More people were turning from private physicians to public hospitals, especially due to the increases in the cost of treatment brought on by the increased effectiveness of health care. These hospitals—no longer constrained by the limited remedies available, the medical revolution, and seeing an increase of patients able to pay for services—could focus more on treatment of maladies than end-of-life care.20
Still, hospitals were not seeing enough paying patients to generate the revenue needed to operate successfully, and the number of unpaid bills was a major concern.21 The number of unpaid bills grew as many patients were unable to pay for their hospital stays; these unpaid bills, and the
[Page 538]
lost income they represented, threatened the viability of many hospitals. In 1929, Justin Kimball, a Baylor University Hospital administrator, thought of a solution to the problem.22 Starting with Dallas, Texas-area schoolteachers, Baylor would receive fifty cents a month from each teacher.23 In return, the teachers would receive 21 days of "semiprivate care (including use of the operating room and various ancillary services—anesthetic, lab tests)" per calendar year.24 The plan—Blue Cross—became popular with hospital administrators, especially those struggling to find funding during the Great Depression.25
Health insurance did not become popular with employers until 1941 and the entry of the United States into World War II. Because of increased production and demand for employees, the federal government instituted wage caps.26 In response, larger employers began offering more employment benefits to distinguish how they paid their employees and to attract more workers while being unable to raise wages.27 One of the most popular benefits was health insurance,28 and thus the American employer-based health insurance system was born. The single Blue Cross insurance plan in Dallas, Texas, grew into the international Blue Cross and Blue Shield (BCBS) Association, with 36 subsidiaries and operations in over 170 countries and territories.29
Health insurance became something of a necessity in employee benefits even before the Patient Protection and Affordable Care Act
[Page 539]
(ACA)30 required large employers to provide insurance to employees.31 It would not be unexpected for a person to pass up an employment opportunity lacking health insurance as a benefit of employment.32 For what was initially an accident, employer-based health insurance has become the largest type of insurance in the United States.33
More generally, health insurance has become a necessity for individuals because of the high costs of health care.34 Although some individuals and families have low-cost plans with high deductibles (the "bronze plans" on the exchanges), insurance still defrays a significant portion of expensive hospital stays and procedures in addition to covering certain necessary benefits—as determined by Congress—without sharing the costs with the insured.35
C. Why Small Employers Do/Should/Would Provide Health Insurance
When small businesses consider whether to renew their insurance plans, the applicability of the employer mandate could lead employers to choose to stop offering insurance for employees.36 This begs the question: Why would a small business choose to provide health insurance to employees despite what appears to be an increase in costs and responsibilities and serious statutory penalties for non-compliance? As
[Page 540]
one employer explained,37 not providing health insurance to employees places employers at "a substantial [competitive] disadvantage."38
While individuals work for employers for a variety of personal and professional reasons,39 American workers expect that full-time employees receive health insurance in their benefits packages. Indeed, the White House estimates that 59% of all small businesses, themselves 96% of the total number of businesses in the United States, provided health insurance to employees in the year before the passage of the ACA.40 Although large in number, small businesses employ a relatively small percentage of American workers: 17.6% of American workers are employed by a business with less than 20 employees, and businesses with less than 100 employees employ 34.3% of American workers.41 However, these statistics do not mean that small businesses and small business interests are unimportant. With the ACA, it is reasonable to believe that
[Page 541]
the general expectation of American workers has risen from obtaining some benefits to the entire statutory benefits provided for under federal law.
The widespread expectation of employer-provided health insurance is most evident in the Internal Revenue Code (IRC). Congress included provisions in the IRC that lessen an employer's burden of providing health insurance.42 "Large employers" are generally thought of as multinational corporations for whom the provision of health insurance to their employees is not a burden. However, a large employer is merely one that has...
To continue reading
Request your trial