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Snapshots: A Comparison of the Availability and Cost of Coverage for Workers in Small Firms and Large Firms

Small and large firms vary substantially on health insurance offer rates and costs.  Small firms are less likely to offer coverage, and there are important differences in the health benefits that small and larger firms offer.  Workers at small firms are responsible for paying both a larger share of family premiums as well as higher cost sharing than workers in large firms.  This Snapshot expands on information presented in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits to look exclusively at differences in offer rates, plan costs, and cost sharing between small firms and large firms. We define “small firms” as employers with three to 199 workers and “large firms” as employers with 200 or more workers.  While the vast majority of businesses in the United States are small businesses, the majority of workers are employed at large firms.  Of the over three million firms with three or more workers, 98% have between three and 199 employees.  Small firms employ 39% of all workers and 33% of workers who receive health insurance through their own job.1 Information on the Survey’s methodology can be found in the 2012 Kaiser/HRET Employer Health Benefits Survey full report.2

Health Insurance Offer and Coverage Rates

Small firms are much less likely to offer health insurance than large firms.  Of firms with 3 to 199 employees, 61% offer health insurance, a stark contrast to the 98% of firms with 200 or more employees that offer coverage to at least some of their employees.  Very small firms (3-9 workers) are least likely to offer health insurance to employees, with only 50% of these firms offering coverage in 2012.  Since most firms in the country are small, the overall offer rate is determined primarily by the percentage of the smallest firms (3-9 workers) offering health benefits.  Small firms may not offer coverage for a variety of reasons, including the inability to afford premiums, employees may be covered elsewhere, or the firm may feel that the benefit does not impact their ability to recruit and retain qualified employees.3  In 2012, 48% of small firms not offering coverage indicated that the cost of health insurance was the primary reason that they did not offer coverage. 4

Percentage of Firms Offering Health Benefits, by Firm Size, 1999-2012

In addition to the percentage of firms that offer benefits, an important component of coverage is the percentage of workers at those firms who are covered by benefits.  Either because some workers are not eligible or they choose not to accept the coverage, a portion of workers at firms which offer health benefits are not covered by health benefits.  While the percentage of covered workers at firms offering benefits is similar between small and large firms (61% and 62%, respectively), the lower offer rate at small firms means a smaller percentage of workers are covered.5  Forty-seven percent of workers at both offering and non-offering firms are covered by health benefits at small firms compared to 62% at large firms.6

Percentage of Workers Covered by Their Employers' Health Benefits, by Firm Size, 2999-2012

In addition to lower offer and coverage rates, small firms are also less likely to offer health benefits to part-time workers than are large firms (28% vs. 45%).7 A similar pattern is seen for temporary workers (2% in small firms vs. 6% in large firms).8 There is a great variability in the number of services covered by health plans across firms. In regards to separate dental and vision benefits, small firms are far less likely to offer or contribute to such plans compared to large firms. For example, 89% of large firms offer dental benefits compared to 53% of small firms.9 Likewise, sixty-two percent of large firms offer vision benefits, while only 27% of small firms do so.10

Premiums

Workers in small firms have lower average premiums for family coverage than workers in large firms ($15,253 vs. $15,980 annually).  Average premiums for single coverage are not statistically different for workers in small firms compared to workers in large firms.  Given that health insurance provided to small firms has higher administrative and marketing costs than health insurance provided to large firms, the lower average small firm premium for family coverage suggests that health insurance benefits are probably less generous on average in small firms.

Average Annual Worker Premium Contributions and Total Premiums for Covered Workers, Single and Family Coverage, by Firm Size, 2012

Differences in average premiums between small and large firms vary by geographic region.  Average premiums are lower for workers in small firms than for workers in larger firms in the West for both single and family coverage and in the Midwest for single coverage.  Premium differences in other regions are not statistically significant.

Averaqe Annual Premiums by Covered Workers, Single and Family Coverage, by Size and REgion, 2012

While, on average, smaller firms have lower family premiums than larger firms, the rate of growth has been similar over the last decade.  Since 1999, family premiums have increased 168% for small firms, similar to the increase of 173% for large firms.  Since 2008, average family premiums have grown 26% for small firms, similar to the 23% growth for large firms.

Average Annual Premiums for Covered Workers with Family Coverage, by Firm Size, 1999-2012

The distribution of premiums is different for small and large firms.  Workers in small firms are much more likely to be employed by firms that have a single premium that is less than 80% of the average, compared to workers in large firms (27% vs. 16%).

Distribution of Premiums for Single Coverage Relative to the Average Annual Single Premium, by Firm Size, 2012

Similar to single coverage, workers enrolled in family coverage at small firms are more likely to have a premium farther from the average.  Workers in small firms with family coverage are more likely to have a total premium of less than 80% of the average family premium (30% vs. 16%).

Distribution of Premiums for Family Coverage Relative to the Average Annual Family Premium, by Firm Size, 2012

Worker Contributions to Premiums

There are significant differences in the amount that employees contribute to premiums at small and large firms.  Workers in small firms with single coverage contribute less to their premium than workers in large firms ($848 vs. $1,001).  However, workers in small firms contribute 31% more for family coverage than workers in large firms ($5,134 vs. $3,926).  Even though workers at small firms enrolled in family coverage are covered by a plan with less expensive premiums ($15,253 vs. $15,980 annually), they are responsible for a larger premium contribution than workers at large firms.  On average workers employed at small firms pay 35% of their family premium, significantly more than the 25% that workers pay at large firms. The differences between small and large firms are more pronounced when considering the distribution of the percentage of the premium paid by covered workers.  Workers in small firms are more likely to work for a firm that pays 100% of the premium cost for both single and family coverage.  However, for both single and family coverage, workers in small firms that require a premium contribution are more likely to have higher premium contributions than workers in large firms.  Five percent of workers in small firms contribute more than half of the premium for single coverage compared to just 1% of workers in large firms.  The discrepancy is greater for family coverage, where 30% of workers in small firms pay over half of the premium compared to 6% of workers in large firms.  On average, workers at small firms who make a premium contribution pay $1,330 for single coverage and $6,098 for family coverage; both contributions are higher than the average worker contribution at large firms ($1,060 for single coverage and $3,995 for family).  On the whole, this indicates that there is considerable variation in the premium contributions that workers are responsible for at small firms, with a share of workers making no contribution, but many more bearing a higher portion of the premium expenses than their counterparts at large firms.

Percentage of Covered Workers with No Premium Contribution or a Contribution of Greater than 50% of the Premium, 2012

While, on average, workers at small firms make a larger family contribution than workers at large firms, the average rate of growth has been similar within both size categories.  Workers’ contributions to family premiums at small firms has increased 25% since 2008 and 94% since 2002, similar to 32% and 107% at large firms.

Enrollment

More than half of workers in small firms are enrolled in single coverage (53%), compared to 43% of workers in large firms.  More workers in large firms are enrolled in family coverage than workers in small firms (38% vs. 32%).  This may be related in part to lower contribution levels for single coverage in small firms than in large firms.  Some small employers may be paying all or a large share of the premium for single coverage to encourage enrollment because health insurers covering small firms generally require that a minimum percentage of employees enroll.

Chart8_5

There are also differences between small and large firms in the types of plans in which workers enroll.  Workers in small firms are more likely than workers in large firms to enroll in a high-deductible health plan with a savings option (HDHP/SO), such as a Health Reimbursement Arrangement (HRA) or a Health Savings Account (HSA) (24% vs. 17%).  Preferred Provider Organizations (PPO) remain the dominate plan type for both small and large firms, although more workers in large firms are covered by PPOs than workers in small firms (63% vs. 43%).

Distribution of Health Plan Enrollment for Covered Workers, by Plan Type and Firm Size, 2012

General Annual Deductibles

In addition to the differences in premium contributions, differences also exist between small and large firms in cost-sharing requirements.  Among those workers with deductibles, workers in small firms generally have higher deductibles than workers in large firms.12  Workers in small firms with single coverage are more likely to have deductibles of at least $1,000 than workers in large firms (49% to 26%). The same is true at higher deductible levels: workers in small firms are more likely (27%) to have a deductible of $2,000 or more than those in large firms (7%). Across all plan types, workers with single coverage have annual deductibles of roughly $500 more than those in plans sponsored by larger firms.  For those with aggregate family deductibles, the difference is greater than $800, with the highest difference seen for PPO plans (above $1,500).

Percentage of Covered Workers Enrolled in a Plan with a High General Annual Deductible for Single Coverage, By Firm Size, 2012 Average Annual Deductibles and Out-of-Pocket Maximums for Single and Family Coverage, by Firm Size and Plan Type, 2012

High-Deductible Health Plans with Savings Option

Although large firms are more likely to offer HDHP/SOs, workers in small firms are more likely to enroll in these types of plans.  There are a variety of differences between the HSA-qualified HDHPs for workers in small firms and those for workers in large firms that may generally make these plans more appealing to workers in smaller firms. By federal law, HSA-qualified HDHPs are required to have a deductible of at least $1,200 for single coverage and $2,400 for family coverage in 2012, resulting in average deductibles that are much higher than deductibles for workers covered by other plan types.  HSA-qualified HDHPs are similar to other plan types in that workers in small firms have higher deductibles than workers in large firms.  The average deductible for single coverage for workers in small firms is $2,525, compared to $1,897 for workers in large firms.  For family coverage, the average aggregate family deductible is $4,645 for workers in small firms, compared to $3,631 for workers in large firms.  Although deductibles differ for workers with HSA-qualified HDHPs in small and large firms, the maximum out-of-pocket liability amounts are similar for covered workers with HSA-qualified HDHPs in small and large firms for both single and family coverage. The distinguishing feature of an HSA-qualified HDHP is the Health Savings Account that employees may establish to pay for medical expenses.  Although workers in small firms typically have higher deductibles, they generally receive about double the firm contribution to the HSA than workers in large firms for both single and family coverage: $845 compared to $402 for single coverage, and $1,423 compared to $760 for family coverage.

HSA-Qualified HDHP Features, by Firm Size, 2012

Conclusion

The accessibility, affordability, and coverage of employer-sponsored health insurance varies greatly for small and large firms.  The smallest firms are about half as likely to offer coverage to their employees as are large firms.  While family premiums are less expensive at small firms, covered workers face higher premium contributions and higher cost sharing in the form of higher deductibles.  The lower offer rate combined with greater cost-sharing responsibilities for workers in small firms may limit the ability of small firms to attract and retain employees. In 2014, additional provisions of the Affordable Care Act (ACA) will take effect, impacting both large and small employers.13 Under the ACA, employers purchasing insurance in the small group market will be required to ensure that their benefits meet essential health benefits standards established by their respective state.  While the ACA will meaningfully impact the availability and scope of insurance coverage, many of the contributing factors to the differences in cost sharing and premiums between small and large employer health benefits are likely to remain.

This Snapshot was prepared by Nirmita Panchal, Matthew Rae, and Gary Claxton of the Kaiser Family Foundation’s Health Care Marketplace Project.  It is an update of a 2008 paper of the same name prepared by Bianca DiJulio.

Notes:

  1. See Exhibit M.2 of the Survey Design and Methods Section of the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, at http://ehbs.kff.org/?page=charts&id=1&sn=1&ch=2832.
  2. Family coverage is defined as health coverage for a family of four.  Differences noted in this snapshot are statistically significant at the 0.05 confidence level. The full report of the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits is available at http://www.kff.org/insurance/8345.cfm.
  3. P. Fronstein, EBRI, R. Helman, M. Greenwald & Associates. Small Employers and Health Benefits: Findings from the 2002 Small Employer Health Benefits Survey.   EBRI Issue Brief Number 253. January 2003.
  4. See Exhibit 2.14 in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, athttp://www.kff.org/insurance/8345.cfm.
  5. See Exhibit 3.6 in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, athttp://www.kff.org/insurance/8345.cfm.
  6. See Exhibit 3.1 in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, athttp://www.kff.org/insurance/8345.cfm.
  7. See Exhibit 2.7 in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, athttp://www.kff.org/insurance/8345.cfm.
  8. See Exhibit 2.8 in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, athttp://www.kff.org/insurance/8345.cfm.
  9. See Exhibit 2.9 in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, athttp://www.kff.org/insurance/8345.cfm.
  10. See Exhibit 2.10 in the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, athttp://www.kff.org/insurance/8345.cfm.
  11. High-Deductible Health Plans with a Savings Option (HDHP/SO) are defined as (1) health plans with a deductible of at least $1,000 for single coverage and $2,000 for family coverage offered with an HRA (referred to as HDHP/HRAs); or (2) high-deductible health plans that meet the federal legal requirements to permit an enrollee to establish and contribute to an HSA (referred to as HSA-qualified HDHPs).  Federal law requires a deductible of at least $1,200 for single coverage and $2,400 for family coverage for HSA-qualified HDHPs in 2012.  See the introduction to Section 8 of the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, at http://www.kff.org/insurance/8345.cfm.
  12. There is insufficient data about aggregate family deductibles for small firms with HMO plans, preventing valid estimates and statistical comparisons between small and large firms.
  13. For more information on employers and health reform see: How will the Affordable Care Act affect small businesses and Their Employees? Kaiser Family Foundation. January 2012. http://www.kff.org/healthreform/8275.cfm.