Employer Sponsored Health Insurance – A Comparison of the Availability and Cost of Coverage for Workers in Small Firms and Large Firms
November 2008

The majority of businesses in the United States are small businesses. Of the over three million firms with three or more workers, roughly 98% have between three and 199 employees. Small firms employ about 40% of all workers and about 34% of workers who receive health insurance through their own job.¹

Small and large firms vary substantially on health insurance sponsorship rates and costs. Small firms are less likely to offer coverage, and health plan benefits often differ between small and large firms. This Snapshot expands on information presented in the 2008 Kaiser/HRET Survey of Employer-Sponsored Health Benefits to look exclusively at the differences in offer rates, plan costs and cost sharing for small firms and large firms and includes an analysis of out-of-pocket payments from 2004 and 2005 Medical Expenditure Panel Survey data.

We generally use “small firms” to describe firms with three to 199 workers and “large firms” to describe firms with 200 or more workers. Information on the survey’s methodology can be found in the 2008 Kaiser/HRET Employer Health Benefits Survey full report.² Family coverage is defined as health coverage for a family of four. Differences noted in the text are statistically significant at the 0.05 confidence level.

Health Insurance Offer Rates

Small firms are much less likely to offer health insurance than large firms. Of firms with 3 to 199 employees, 62% offer health insurance to their employees, a stark contrast to the estimated 99% of firms with 200 or more employees that offer coverage (Exhibit 1). Very small firms (3-9 workers) are least likely to offer health insurance to employees, with only 49% of these firms offering coverage in 2008. Small firms may not offer coverage for a variety of reasons, including 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

Exhibit 1:

Premiums

Workers in small firms have lower average premiums for family coverage than workers in large firms ($12,091 vs. $12,973) in 2008 (Exhibit 2). 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 and similar premium level for single coverage suggests that health insurance benefits are probably less generous on average in small firms. Several indicators of benefit levels are discussed later in this report.

Exhibit 2:

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 South and the West for both single and family coverage (Exhibit 3). Premium differences in other regions are not statistically significant.

Exhibit 3:

Average Annual Premiums for Covered Workers, Single and Family Coverage, by Size and Region, 2008
	Single Coverage	Family Coverage
NORTHEAST
All Small Firms (3-199 Workers)	$5,187	$13,371
All Large Firms (200 or More Workers)	$4,996	$13,771
Total	$5,052	$13,656
MIDWEST
All Small Firms (3-199 Workers)	$4,957	$13,022
All Large Firms (200 or More Workers)	$4,610	$12,707
Total	$4,723	$12,809
SOUTH
All Small Firms (3-199 Workers)	$4,271*	$11,461*
All Large Firms (200 or More Workers)	$4,617*	$12,607*
Total	$4,509	$12,252
WEST
All Small Firms (3-199 Workers)	$4,293*	$11,321*
All Large Firms (200 or More Workers)	$4,969*	$13,104*
Total	$4,683	$12,351
ALL FIRMS
All Small Firms (3-199 Workers)	$4,586	$12,091*
All Large Firms (200 or More Workers)	$4,763	$12,973*
Total	$4,704	$12,680
*Estimates are statistically different within region between Small Firms and Large Firms (p<.05).
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.

Premiums for workers in small and large firms have had similar premium increases over the last decade (Exhibit 4). Since 1999, family premiums have increased 113% for small firms, similar to the increase of 122% for large firms. Since 2004, average family premiums have grown 24% for small firms, similar to the 29% growth for large firms.

Exhibit 4:

The distribution of premiums is also 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 (34% vs. 16%) (Exhibit 5). However, workers in small firms are also more likely than workers in large firms to have a premium that is greater than 120% of the average single premium (22% vs. 16%).

Exhibit 5:

Similar to the results for single coverage, workers in small firms with family coverage are more likely to have a total premium of less than 80% of the average family premium (34% vs. 13%) (Exhibit 6). However, the percentage of workers with family premiums greater than 120% of the average is similar for small and large firms (20% vs. 18%).

Exhibit 6:

Worker Contributions to Premiums

There are significant differences between workers in small firms and large firms in the amount the employee contributes to the premium. Workers in small firms with single coverage contribute less to their premium than workers in large firms ($624 vs. $769) (Exhibit 2). However, for family coverage, the opposite is true. Workers in small firms contribute about 40% more for family coverage than workers in large firms ($4,101 vs. $2,982).

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 may find some relief in that they are more likely to work for a firm that pays 100% of the premium cost for both single and family coverage (Exhibit 7). However, workers in small firms that require a premium contribution from their employees are more likely to have higher premium contributions than workers in large firms for both single and family coverage. Five percent of workers in small firms contribute greater than 50% of the premium for single coverage compared to 1% of workers in large firms. The discrepancy is greater for family coverage with 30% of workers in small firms paying over 50% of the premium compared to 6% of workers in large firms.

Exhibit 7:

 

Enrollment

More than half of workers in small firms are enrolled in single coverage (53%), compared to 42% of workers in large firms (Exhibit 8). 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 in health insurance.

Exhibit 8:

There are also differences between small and large firms in the types of plans in which workers enroll (Exhibit 9). Workers in small firms are more likely than workers in large firms to be enrolled in a high-deductible health plan with a savings option (HDHP/SO),⁴ such as a Health Reimbursement Arrangement (HRA) or a Health Savings Account (HSA) (13% vs. 5%). 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 (64% vs. 46%).

Exhibit 9:

Annual Deductibles and Out-of-Pocket Maximums

In addition to some of the differences found for 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 (Exhibit 10).⁵ For example, workers with single coverage in PPO or POS plans sponsored by small firms have annual deductibles of roughly $500 more than those in plans sponsored by larger firms. For those with aggregate family deductibles for PPO or POS coverage, the difference is greater than $1,400.

Workers with PPO coverage in small firms are more likely than those in large firms to have no specified annual limit to the amount they are required to pay out-of-pocket, referred to as an out-of-pocket maximum for both single and family coverage. Among those workers in PPOs with an out-of-pocket maximum, workers in small firms have higher out-of-pocket maximums than workers in large firms for single coverage (Exhibit 10). For family coverage, there is no statistical difference in the average out-of-pocket maximum amount between workers in small firms and workers in large firms.

Not all plans count spending for the deductible or spending for specific types of services towards the out-of-pocket maximum. Some plans also have first dollar coverage for certain services such as preventive care, meaning the enrollee is not required to meet the deductible before receiving coverage for the service. Workers in small firms in PPOs are more likely to have to meet the deductible before preventive care or prescription drugs are covered than workers in large firms. Eighteen percent of workers at small firms in PPOs must meet their deductible prior to receiving coverage for preventive care services, while 8% of workers in large firms must do so. Thirteen percent of workers in small firms with PPO coverage are required to meet their deductible before prescription drugs are covered, compared to 5% of workers in large firms. At the same time, workers in PPOs in small firms have more of their spending count towards meeting their out-of-pocket maximum. For instance, 76% of workers in small firms enrolled in a PPO have their deductible spending count towards meeting their out-of-pocket maximum, compared to 64% of workers in large firms.

  Exhibit 10:

Average Annual Deductibles and Out-of-Pocket Maximums for Single and Family Coverage, by Firm Size and Plan Type, 2008‡
	Single Deductible	Family Aggregate Deductible §	Single Out-of-Pocket Maximum	Family Aggregate Out-of-Pocket Maximum §
HMO
All Small Firms (3-199 Workers)	NSD	NSD	$2,007	$4,078
All Large Firms (200 or More Workers)	$307	$626	$1,846	$4,169
PPO
All Small Firms (3-199 Workers)	$917*	$2,367*	$2,207*	$4,634
All Large Firms (200 or More Workers)	$413*	$948*	$1,907*	$4,170
POS
All Small Firms (3-199 Workers)	$960*	$2,614*	$2,405	$5,882
All Large Firms (200 or More Workers)	$461*	$948*	$2,017	$4,168
HDHP/SO
All Small Firms (3-199 Workers)	$1,959*	$3,897*	$2,990	$5,875
All Large Firms (200 or More Workers)	$1,599*	$3,089*	$3,032	$6,013
*Estimates are statistically different within plan type between Small Firms and Large Firms (p<.05).
‡ All averages are among workers facing a general annual deductible or out-of-pocket maximum.
§ Average deductibles for family coverage include are among those with an aggregate family deductible, in which spending by all covered family members applies to the deductible. Average out-of-pocket maximums for family coverage are among those with an aggregate family out-of-pocket maximum, in which applies to spending by any covered person in the family
NSD: Not Sufficient Data.
Note: There is insufficient data about deductibles for small firms with HMO plans, preventing statistical comparisons between small and large firms with HMO plans. There is insufficient data to present the results for plans with an separate per-person family deductible or separate per-person out-of-pocket maximum, with the exception of firms with PPO plans. The average annual separate family deductible for PPO coverage was greater for workers in small firms than for workers in large firms ($699 vs. $429). There is no statistical diffrence between workers in small and large firms in the separate out-of-pocket maximum amounts for PPO coverage ($2,293 vs. $2,123).
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.

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. However, because HSA-qualified HDHPs are relatively new to the market, it will be important to watch as these plans develop to see if the differences between plans persist.

By federal law, HSA-qualified HDHPs are required to have a deductible of at least $1,100 for single coverage and $2,200 for family coverage in 2008, 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 $2,294, compared to $1,564 for workers in large firms (Exhibit 11). For family coverage, the average aggregate family deductible is $4,428 for workers in small firms, compared to $3,084 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 (Exhibit 11).

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 generally 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: $1,041 compared to $521 for single coverage, and $1,862 compared to $992 for family coverage (Exhibit 11).

The total average annual premium for HSA-qualified HDHP family coverage is less for small firms ($8,441) than large firms ($10,130). For single coverage, premium amounts are similar for workers in small and large firms. The worker premium contributions are statistically similar for workers in small and large firms for both single and family coverage.

  Exhibit 11:

HSA-Qualified HDHP Features, by Firm Size, 2008
Annual Plan Averages for:	Single Coverage	Family Coverage
Premium
All Small Firms (3-199 Workers)	$3,475	$8,441*
All Large Firms (200 or More Workers)	3,608	10,130*
ALL FIRM SIZES	$3,527	$9,101
Worker Contribution to Premium
All Small Firms (3-199 Workers)	$365	$2,478
All Large Firms (200 or More Workers)	505	2,105
ALL FIRM SIZES	$420	$2,332
Deductible‡
All Small Firms (3-199 Workers)	$2,294*	$4,428*
All Large Firms (200 or More Workers)	1,564*	3,084*
ALL FIRM SIZES	$2,010	$3,911
Out-of-Pocket Maximum Liability‡
All Small Firms (3-199 Workers)	$3,260	$6,110
All Large Firms (200 or More Workers)	3,342	6,557
ALL FIRM SIZES	$3,292	$6,280
Firm Contribution to HSA§
All Small Firms (3-199 Workers)	$1,041*	$1,862*
All Large Firms (200 or More Workers)	521*	992*
ALL FIRM SIZES	$838	$1,522
* Estimates are statistically different within plan feature between All Small Firms and All Large Firms (p<.05).
‡ The deductible and out-of-pocket maximum averages shown for family coverage are for covered workers whose firms report that they face an aggregate amount. Among covered workers in HSA-qualified HDHPs, 4% are in plans whose family deductible is a separate per person amount and 4% are in a plan where the family out-of-pocket maximum is a separate per person amount.
§ When those firms that do not contribute to the HSA (28% for single and family coverage) are excluded from the calculation, the average firm contribution to the HSA for covered workers is $1,139 for single coverage and $2,067 for family coverage.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008.

 

Out-of-Pocket Spending

To examine the out-of-pocket spending for people with employer-sponsored coverage, we performed an additional analysis using the Household Component of the Medical Expenditure Panel Survey (MEPS HC). MEPS is conducted annually by the Agency for Healthcare Research and Quality to collect data on medical expenditures, insurance coverage, and medical service use for the U.S. noninstitutionalized population. MEPS also collects information from employed respondents on the number of employees that work at their particular office or location, known as the establishment. A firm may be made up of one or more establishments, and therefore, establishment size may not be equivalent to firm size, but it should be a reasonable proxy for looking at the insurance experience of small versus large enterprises.⁶ To increase sample size, we pooled data from the 2004 and 2005 MEPS HC.

Examining the share paid out-of-pocket helps identify differences in levels of coverage. Those people paying more out-of-pocket may have less comprehensive coverage than those with lower out-of-pocket shares since their insurance is picking up less of the cost. Nonelderly people with employer-sponsored coverage⁷ who work for an establishment with between 3 and 199 employees generally pay a larger share of their medical expenses out-of-pocket than those who work for larger establishments (34% vs. 30%) (Exhibit 12). These calculations include expenditures for health care services and do not include payments for premiums.

Exhibit 12:

Conclusion

Workers in small firms and large firms have different experiences in the accessibility, affordability, and coverage of employer-sponsored health insurance. The smallest firms are about half as likely to offer coverage to their employees. Premiums are similar between workers in small firms and large firms for single coverage and less expensive for workers in small firms for family coverage, although the plans that cover workers in small firms generally include higher cost sharing in the form of higher deductibles. Workers in small establishments also spend more out-of-pocket than their counterparts in large establishments.

The lower rate of offering and higher cost-sharing responsibilities for workers in small firms may limit the ability of small firms to attract and retain employees. Understanding the differences in coverage is important for the ongoing debates about universal coverage legislation that include “pay or play” provisions requiring employers to sponsor insurance or pay into a purchasing pool,⁸ since these proposals focus on encouraging small firms to sponsor or contribute to health insurance.

This paper was prepared by Bianca DiJulio of the Kaiser Family Foundation’s Health Care Marketplace Project.

Notes:

1.  See Exhibit M.2 of the Survey Design and Methods Section of the 2008 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, at http http://www.kff.org/insurance/7790/index.cfm.

2. The full report of the 2008 Kaiser/HRET Survey of Employer-Sponsored Health Benefits is available at http://www.kff.org/insurance/7790/index.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.  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 $1,100 for single coverage and $2,200 for family coverage for HSA-qualified HDHPs in 2008.  See the introduction to Section 8 of the 2008 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, at www.kff.org/insurance/7790.

5. There is insufficient data about deductibles for small firms with HMO plans, preventing valid estimates and statistical comparisons for HMO enrollees between small and large firms.

6. Looking at the U.S. Census Bureau’s Statistics of U.S. Businesses 2004 data, the majority of smaller firms include only one establishment. The data are available at http://www.census.gov/epcd/www/smallbus.html. 

7. The analysis includes people with six months or more of employer-sponsored coverage and excludes people with more than five months of Medicaid, Medicare, Tricare, or nongroup coverage.

8. These mandates generally include exceptions for companies with 10 or fewer employees.