How Much Worse Off Are Small Firms?

By Christine Eibner

RAND Corporation
April 4, 2008
Technical Report

Health-insurance burdens borne by employers grew substantially between 2000 and 2005, regardless of firm size. While growth was highest for small firms (<25 employees), medium-sized firms (25 to 99 employees) did not face higher growth in health-insurance burdens than larger employers did. Our results suggest that targeting health reforms that build on the employer-based system solely to large firms may be unwarranted, given that large firms do not face lower health-insurance burdens than moderately small firms do.

However, our results indicate that the growth in health-insurance burdens has been substantial regardless of firm size. As a result, it seems that all employers - large and small alike - may have difficulty shouldering health-insurance burdens if costs continue to rise. Although firms may pass insurance costs back to employees in the form of lower wages, employees may be unwilling or unable to afford these cost increases in the future. This may be particularly true at very small firms, at which employees appear to be sacrificing a larger share of their wages for a lower-quality benefit.

News release:

http://rand.org/news/press/2008/04/04/

Technical report:

http://rand.org/pubs/technical_reports/2008/RAND_TR559.pdf

Comment: 

This report provides extensive data documenting the increased burden of employer-sponsored health insurance, especially in small firms. Those interested in defining and quantifying the extent of this problem would be interested in downloading this report.

For most of us, the important bottom line is that employees, especially in small firms, are sacrificing a larger share of their wages for a lower-quality benefit.