Health Insurance: Availability and Adequacy for Small Businesses

GAO discussed the problems that small businesses have in providing health insurance to their employees, focusing on restrictive changes in both small and large insurance company plans. GAO found that: (1) rising health care costs led to an eight-fold increase in business health spending between 1970 and 1987; (2) in 1988, health care costs increased 33 percent for firms with less than 25 employees, which was 1.5 times the rate that large businesses experienced; (3) only 46 percent of businesses with less than 10 employees offered health insurance, while almost all businesses with 100 or more employees offered health insurance; (4) firms with 25 or fewer employees employed 3.9 million of the 8.2 million uninsured workers; (5) factors which led to the erosion of health insurance for small businesses included their inability to spread risk over a large number of employees, the decline of community-rated health insurance products, and competition among insurers to offer coverage to only the best risks; (6) some insurers have used restrictive underwriting practices to move employees with preexisting medical conditions out of their risk pools; and (7) although some industry groups and state governments created multiple employer trusts and state-assigned risk pools, some pools had limited coverage and ran deficits, and many used medical underwriting and were subject to adverse risk pool selection.