Health Insurance For Small Business Firms

Transcription

1 THE SHORTCOMINGS OF VOLUNTARISM IN THE SMALL-GROUP INSURANCE MARKET by Catherine G. McLaughlin and Wendy K. Zellers Prologue: America s reliance on voluntary solutions to vexing social problems is a theme that runs through its history. Private foundations are public trusts that society, in its search for voluntary solutions, turns to for social experimentation and innovation. Sometimes foundations achieve success in their pursuits; often they do not. But whatever the outcome, most foundations do not evaluate their program efforts with the same energy and expenditure that was allocated for their design. Occasionally, though, foundations do put forth the extra effort, as this paper by Catherine McLaughlin and Wendy Zellers indicates. Along with colleague Lawrence D. Brown, the authors were enlisted by The Robert Wood Johnson Foundation to evaluate the results of its Health Care for the Uninsured Program. In this paper, they underscore the challenge of structuring a set of incentives that encourage people to change their behavior voluntarily in this case, to buy health insurance. As a part of their effort, they collected survey data in four of the nine program sites on the small businesses that offered health insurance to their employees and those that did not. The data showed that useful projects that reduced the number of working uninsured people were created in the four sites, but the evaluators also found that the market penetration ranged from 2 to 17 percent, with only one project in the double digits. Their conclusion: Larger efforts are required to make significant reductions in the number of people who lack health insurance. The Robert Wood Johnson Foundation retained McLaughlin and Brown several years ago to evaluate another of its efforts- t h e Community Programs for Affordable Health Care-and their findings were published in Health Affairs (Winter 1990). McLaughlin holds a doctorate in economics from the University of Wisconsin-Madison. Zellers received a master s degree in public health from the University of California, Berkeley.

2 SHORTCOMINGS OF VOLUNTARISM 29 Concern for the growing number of uninsured, and particularly the working uninsured, prompted The Robert Wood Johnson Foundation (RWJF) to initiate the Health Care for the Uninsured Program in January In creating this program, the foundation aimed to support the development and implementation of new public/ private health care financing arrangements at the state and local level. Although many of the fifteen projects sponsored by the program used multiple strategies, the primary focus has been the development and marketing of affordable health insurance products for small businesses. 1 Of the projects targeted to uninsured small businesses, nine eventually enrolled firms to participate. 2 As part of the overall program evaluation, survey data were collected from over 1,300 small businesses in four communities on the prevalence and characteristics of small businesses and their employees with and without health benefits and those participating in the sponsored plans. The results of these surveys give an indication of what well-coordinated, subsidized public/ private initiatives can accomplish and of how many and what kinds of small firms will elect to remain without health insurance. In general, the foundation-sponsored projects have enrolled a relatively small percentage of the small businesses in their target areas; in many ways, those businesses do not differ significantly from the firms already offering health insurance to their employees. In our four survey sites, the market penetration rate-that is, the percentage of small businesses not offering health insurance that then enrolled in the foundation-sponsored plan-ranged from 2 percent to 17 percent, with only one project in the double digits. So, although these projects have increased slightly the number of employees with insurance, they are not making great inroads into the hard core of small businesses not interested in offering coverage, given current options. Description Of Study Sites Several strategies have been pursued by the four sites we studied (Exhibit 1). The Pima County (Tucson, Arizona) foundation-sponsored project, Health Care Group, was administered by the state s Medicaid program (Arizona Health Care Cost Containment System [AHCCCS]) and contracted with an AHCCCS health maintenance organization (HMO) in Tucson to offer four insurance plan options, varying in deductible levels and coinsurance rates. An indirect subsidy from the state, which provided administrative and marketing services to the HMO, reduced premiums to about 9.5 percent below their market rate. In Hillsborough County (Tampa, Florida), the Florida Health Access

3 30 HE ALTH AF FAIRS Su mmer 1992 Exhibit 1 Project Characteristics Of Small Business Benefits Survey Sites Tucson Tampa Flint Denver Type of plan HMO a HMO a HMO, PPO a Indemnity Eligible firm size Date enrollment began l/ 1/ 88 5/ 19/ 89 5/ l/ 88 8/ 22/ 89 Prior coverage restrictions b Yes Yes Yes None Employee premium share c None 50% 33% 25% Cost-saving features Limited benefits Yes Major cost-sharing Yes Limited provider access Yes Yes Yes Yes Provider discounts Yes Yes Yes Type of subsidies Indirect Indirect Direct None Source: Small Business Benefits Survey, a HMO is health maintcnancc organization. PPO is preferred provider organization. b Projects under The Robert Wood Johnson Foundation s Health Care for the Uninsured Program could determine whether or not (and for how long) businesses had to be uninsured (that is, could not offer a group health insurance benefit plan) before being eligible for foundation-sponsored plans. c These figures represent the minimum percentage required from each employer. d Projects with indirect subsidies keep premium costs down by paying administrative and marketing expenses, by funding or facilitating the purchase of reinsurance, or by providing stop-loss protection. Projects with direct subsidies keep premium costs down by paying at least some portion of the premium amount on behalf of employees. employers, or the insurance company. Corporation was set up under the auspices of the Florida Department of Health and Rehabilitative Services. Florida Health Access contracted with a private HMO for coverage that offered high- and low-option plans, with copayments and covered benefits varying in the two options. The state provided an indirect subsidy not only by supporting the Florida Health Access Corporation s administrative and marketing functions, but also by paying the sponsoring HMO directly for claims from $15,000 to $115,000, thereby enabling premiums to be set 25 to 40 percent below market rates for comparable products. The demonstration project in Genessee County (Flint, Michigan), the Health Care Access Project, offered several approved off-the-shelf insurance plans already available in the community. In what was called the One-Third Share Plan, employers paid one-third of the premium. Direct state subsidies were available to employees who had been on general assistance prior to employment. Depending on the employee s income level, the state paid either one-third or two-thirds of the premium, with the employee paying either one-third or nothing. In the Denver (Colorado) metropolitan area, the Shared Cost Option Plan for Private Employers (SCOPE) designed a plan that promotes outpatient and primary provider care and requires high copayments for hospital-based services ($250 deductible and 50 percent of the first

4 SHORTCOMINGS OF VOLUNTARISM 31 $5,000). A national indemnity insurer contracted with the Denver Department of Health and Hospitals to sell the plan in the area. Too many confounding factors exist to allow us to ascertain the extent to which individual plan or site characteristics contributed to market penetration rates. However, information about what kinds of firms were enrolling in each project is valuable in evaluating the effects of different approaches. In addition to surveying small businesses, we surveyed insurance companies and agents in the four sites. The data help clarify what incentives and changes would be needed to make significant increases in the provision of employer-based health insurance. Study Methods The Small Business Benefits Survey (SBBS) was conducted by the Institute for Social Research (ISR) at the University of Michigan during the summer of 1990 in the four sites. A small business was defined as one with two to twenty-five persons working more than seventeen hours per week, including any owner(s) who also worked at that location more than seventeen hours per week. Because of the high employee turnover in this market, we asked respondents to count only those persons working the week before the firm was surveyed. To be eligible for our survey, small businesses that were part of a multibranch firm had to have decision-making power for the health benefits offered to employees. Sample frame. The sample frames of participant firms in Tucson, Tampa, and Flint were the complete census of businesses enrolled in the foundation-sponsored plan at the time of the study. In Denver, the sample frame of participants represented a subset of enrolled firms compiled by Denver project staff. This subset consisted of firms with two to twenty-five persons working who indicated at the time of enrollment that they would be willing to be contacted at some later date for a survey-a stipulation placed by the insurance company selling the plan. Of the 224 eligible firms, 188 were willing to be contacted. There was no apparent participation bias according to size or type of business. Sample frames for the comparison firms-that is, firms that did not participate in the Health Care for the Uninsured Program-originated from either Dun and Bradstreet s Dun s Marketing Indicator (DMI) lists or the Employment Security Section 202 data (ES-202). DMI is a commercially available sample frame of all businesses that have applied for any type of credit, supplemented by various forms of business identification, including the Yellow Pages phone directory. State ES202 data are composed of all businesses within a state that file for unemployment insurance payments. The sample frame in Tucson was restricted to the

5 32 HEALTH AF F AIRS Su mmer 1992 DMI list because the state would not release ES202 data. In Tampa, Flint, and Denver, comparison firms were drawn from both lists. Analysis of the two frames indicated few differences. 3 from both frames were selected using a stratified random technique. Selection strata were defined by firm size and Standard Industrial Code (SIC). Employment-size strata were two to four employees, five to nine employees, and ten to twenty-five employees. SIC code strata consisted of (1) agriculture, mining, and construction; (2) manufacturing, utilities, and transportation; (3) wholesale and retail trade; (4) finance and professional services; and (5) other services. Survey mode and instrument. A dual-mode mail and telephone survey was undertaken. All businesses in the sample were first contacted by phone to establish the eligibility of the business, identify the person who would act as a respondent to the mail survey, and obtain correct address information. All eligible businesses who completed the screening interview received a survey packet in the mail. Over the next few weeks, nonrespondents received a reminder and a second packet. Three weeks after the second mailing, all of the remaining nonresponding participant firms and a subset of the remaining comparison firms were selected for a telephone interview. The survey questionnaire consisted of two sections: one that contained questions about firm-level characteristics, and one that consisted of a grid that asked for demographic and health insurance information about each individual employee, up to eight employees. Because of respondents time constraints, firms with more than eight persons working more than seventeen hours per week (18.5 percent of the sample) were asked at the time of the screening call to list all eligible employees. From this list, seven employees were randomly selected and, along with the eligible owner, were entered in the grid with unique identifiers. Appropriate weights were then applied to these subsets in the analysis. Results Of The Survey Response rates. The SBBS response rates were high relative to the response rates experienced by most national surveys of small businesses. 4 Rates among participant firms ranged from 71 percent in Tampa to 84 percent in Flint, with Tucson and Denver at 80 percent and 82 percent, respectively. In Flint, where all comparison firms were contacted by phone, the response rate was slightly less, 74 percent. In the other cities, response rates were much smaller for the comparison firms (Tucson, 58 percent; Tampa, 54 percent; and Denver, 55 percent), reflecting the fact that only half of the firms that did not respond to the mail survey were

6 SHORTCOMINGS OF VOLUNTARISM 33 selected for a telephone interview. Based on the telephone response rate for the 50 percent subsample, we estimate the effective response rate in Tucson, Tampa, and Denver to be percent. Three components of the analysis weights were applied to the SBBS samples of participants and comparisons: (1) a basic sample selection weight, (2) a nonresponse adjustment, and (3) a population poststratification factor. All results reported use weighted data. Coverage. Even among this group of small firms, the propensity to offer health insurance clearly increases with firm size (Exhibit 2). This trend is due in part to the fact that many small-group policies are not available for firms with fewer than ten workers. In addition, certain underwriting practices that could lead to exclusion and that are applied only to the smallest firms result in lower levels of coverage. Except in Tucson, approximately half of the firms with two to five full-time workers offer health insurance. The provision of employerbased group health insurance is much more common among the larger firms, with a notable jump in the percentage offering insurance occurring at six workers in Denver and at ten workers in Tucson and Flint, and a steady increase noted in Tampa. The relatively high level of coverage in Denver for firms with ten to twenty-five workers most likely reflects different work force and industry composition. Denver ranks second in the nation for median number of school years completed by its residents and has 64 percent more college graduates than the U.S. average. 5 This may mean that the expectation for nonwage benefits is higher. The average firm in Denver also earned a higher revenue per full-time equivalent (FTE) employee (Exhibit 3). Exhibit 2 Firms Offering Health Insurance, By Size Of Firm, 1990 Source: Small Business Benefits Survey, Note: Size of firm reflects number of employees working more than thirty-four hours per week.

7 34 HE ALTH AFF AIRS I Su mmer 1992 Exhibit 3 Revenue Per Full-Time-Equivalent Employee, By Site And Type Of Insurance, 1989 Source: Small Business Benefits Survey, We grouped firms by number of full-time workers. In part, this definition of firm size corresponds to health insurers reluctance to cover part-time workers. With only one exception, the fifty-four health insurance companies we interviewed restricted benefit availability to fulltime employees, usually defined as those working at least thirty hours a week. We found that anywhere from 10 percent to more than 50 percent of small-firm employees are part-time workers, with those firms not offering health insurance having, on average, twice as high a proportion of part-time workers as those that do offer insurance (Exhibit 4). Not surprisingly, larger, wealthier, and older firms were more likely to offer health insurance. Firms offering health insurance were also more likely to offer other fringe benefits and pay higher wages. Clearly, a lot of these firm characteristics go together. In general, older firms are larger and gross higher revenue. However, most of these individual effects held up in logistic regression analyses. Gross revenue per employee, size, and proportion of full-time workers were all statistically significant determinants of the probability of a firm s offering health insurance. 6 Participants. The foundation-sponsored plans appear to have attracted firms that are, on average, slightly smaller, younger, and poorer than those firms that offered other forms of health insurance. In fact, the participant firms were younger than either of the comparison groupsthose with insurance and those without (Exhibit 5). With one exception, they also had a lower revenue per FTE employee (Exhibit 3). In Tucson, Tampa, and Denver, although the average participating

8 SHORTCOMINGS OF VOLUNTARISM 35 Exhibit 4 Average Number Of Full-Time, Part-Time, And Full-Time-Equivalent (FTE) Employees, By Site And Type Of Insurance, 1990 Site Tucson Participating firms with coverage without coverage Tampa Participating firms with coverage without coverage Flint Participating firms with coverage without coverage Denver Participating firms with coverage c Participating firms without coverage c with coverage without coverage Num ber Number Number full-ti m e part-time b FTE Source: Small Business Benefits Survey, Note: Type of insurance refers to participation in a Robert Wood Johnson Foundation-sponsored plan (participating firms) or comparison firms. a Average number of persons working more than thirty-four hours per week. b Average number of persons working seventeen to thirty-four hours per week. c In Denver, participating firms with and without coverage refers to firms that were insured at the time they enrolled in the Denver Health Care for the Uninsured Program demonstration plan, and firms that did nor offer health insurance prior to enrolling in the plan. firm was smaller and younger than firms that did not offer insurance, both the size and age distributions were very similar. Relative to firms offering other health insurance, the participating firms were more likely to gross lower revenues per FTE employee, with two to four times as large a proportion grossing less than $30,000 and one-half to one-third as many grossing over $90,000 per full-time employee. As with size and age, the distribution of participating firms with respect to revenue per FTE employee was close to that of firms without insurance. The exception to this pattern is Denver, where two kinds of participant firms exist: those that did not offer insurance at time of enrollment in the foundation-sponsored plan, and those that did and were merely switching to a different, perhaps lower-cost, plan. Denver was the only program site that allowed currently insured firms to enroll in the sponsored plan. Approximately 40 percent of the Denver participants were insured at the time they enrolled in the foundation-sponsored plan. There is a clear difference in the two kinds of participant firms. Those

9 36 HEALTH AF F AIRS Su mmer 1992 Exhibit 5 Average Age Of Business, By Site And Type Of Insurance, 1990 Sources: Small Business Benefits Survey switching were older and wealthier than those without insurance at time of enrollment. One-fourth of the newly covered firms in Denver had been in operation only one or two years at the time of the survey, compared with only 7 percent of those switching. Almost 30 percent of the participants without prior coverage reported gross revenues of less than $30,000 per FTE employee. Only 15 percent of the participants changing carriers were in this bottom revenue group. The newly covered firms were also significantly smaller (Exhibit 4). Given the relationship between age, size, and gross revenue of firms, it is possible that in a few years both groups of Denver participants will more closely resemble the firms with other sources of health insurance. Over half of the participating firms in Tucson, Tampa, and Flint reported changing carriers in the past three years. So, although firms currently offering health insurance were not eligible to enroll in the foundation program, most of them had offered a plan in the recent past. Only 20 percent of the firms without health insurance at the time of the survey reported having previously offered a plan. Even though the two groups of firms appear similar in terms of size, age, and revenue, there are clearly differences in either the ability of the firm to obtain health insurance or in employer or employee preferences regarding insurance. Except in Flint, employees of participating firms earned, on average, higher wages than employees of firms not offering health insurance and lower wages than employees of firms that offer other health insurance (Exhibit 6). The difference in Flint most likely reflects the program s target population: small businesses that employed a former Medicaid or

10 SHORTCOMINGS OF VOLUNTARISM 37 Exhibit 6 Average Hourly Wage And Percentage Of Companies Offering Benefits, By Site, Type Of Insurance, And Type Of Benefits, 1990 Benefit offered a P ai d Sick Long-term Life Site Wage vacatio n leave d isab ility insurance Retirement Tucson Participating firms $ % 34% 9% 8% 6% with coverage without coverage Tampa Participating firms with coverage without coverage Flint Participating firms with coverage without coverage Denver Participating firms with coverage b Participating firms without coverage with coverage without coverage Source: Small Business Benefits Survey, Note: Type of insurance refers to participation in a Robert Wood Johnson Foundation-sponsored plan (participating firms) or comparison firms. a Respondents were asked if they provided these benefits to their full-time employees. b In Denver, participating firms with and without coverage refers to firms that were insured at the time they enrolled in the Denver Health Care for the Uninsured Program demonstration plan, and firms that did not offer health insurance prior co enrolling in the plan. general assistance recipient. The participant firms in Tucson, Tampa, and Flint were more likely to offer other fringe benefits than firms without health insurance, but less likely to do so than firms with other health insurance. In Denver, participants with prior insurance were actually more likely to offer other benefits than were firms with other sources of health insurance. Both participants with and without prior insurance were more likely to offer life insurance, perhaps reflecting the fact that a multiproduct insurer is

11 38 HEALTH AF F AIRS Su mmer 1992 marketing this foundation-sponsored health insurance plan. There were slight differences in the personal characteristics of employees in these groups of firms. A significantly larger percentage of employees of firms offering non-foundation-sponsored health insurance had worked for that firm for more than three years, and a significantly smaller percentage had worked for the firm for less than one year. Reflecting the relatively young age of the participant firm, a smaller percentage of the employees of these firms had worked more than three years than was the case in either of the other two groups. Employees of firms that do not offer health insurance were more likely to be part-time workers and, except in Flint, to be hourly workers. While an employee of a firm in Tucson that did not offer health insurance was more likely to be a young, single man, there were no clear patterns in the other sites with respect to age or marital status of the worker, nor the proportion of men or women. Approximately three-fourths of employers, both participant firms and firms offering other insurance, cited the need to attract and keep employees as an important reason for offering insurance. Almost half of the employers said that a sick employer, employee, or a family member of the employer or an employee was an important reason why they decided to offer health insurance. Except in Tampa, approximately one-third more participant firms cited this as an important reason than firms offering other insurance. The reverse was true in Tampa. Policy Implications To understand the kinds of firms responding to the Health Care for the Uninsured Program initiative, we need to divide them into two groups: those that offered health insurance in the recent past, and new entrants into the market. Those that previously offered health insurance looked very much like the comparison firms, in both firm and employee characteristics. Why they dropped their previous insurance or why they switched to the foundation-sponsored plan is not clear. Most mentioned large premium increases or dissatisfaction with the previous insurer as reasons for dropping coverage, and two-thirds said that finding an affordable plan was an important reason for offering the foundation-sponsored plan. However, the importance of price in decision making was no different for the firms that offered other insurance. Most of the Health Care for the Uninsured Program projects have found a small niche in the previously uninsured market firms that are, on average, smaller and younger with relatively low revenue but with expectations of growing richer and with higher-paid employees who

12 SHORTCOMINGS OF VOLUNTARISM 39 expect such benefits as health insurance. It is possible that the main barrier to obtaining insurance faced by these participating firms was their relatively young age. In time, these firms may grow to resemble the firms that had health insurance coverage from other sources. Whichever group we examine, the market shares of the foundationsponsored plans are quite small. The largest share is in Tampa, where we estimate that approximately 17 percent of the firms with two to twentyfive employees that did not have health insurance enrolled in the Florida Health Access Corporation plan. The other three sites achieved much lower shares, ranging from 2 to 5 percent. These low rates are consistent with the low penetration rates estimated by Ken Thorpe and colleagues in the Brooklyn and Albany pilot studies. 7 In all cases, the premiums were subsidized; there were not many takers. There are obviously many possible reasons, including offering what is perceived as an undesirable package (for example, the Arizona Health Care Group uses HMOs under contract with the state s Medicaid program, in contrast to Florida s offer of an established and respected HMO at a heavily subsidized price; the SCOPE plan in Denver has a very high copayment), insufficient or ineffective marketing to potential enrollees, and premiums that remain too high. 8 Our results give some additional insight into why so many small firms do not offer insurance. For example, because of certain insurance industry underwriting practices, specific businesses may have difficulty finding insurance products. Our survey of insurers found systematic exclusions of certain businesses. 9 Other insurers will cover these industries, but they add a substantial (as high as 50 percent) surcharge to the usual premium. Another gap in coverage exists for part-time workers. Our results indicate that businesses with a larger proportion of full-time workers are more likely to offer health insurance. In addition, the percentage of full-time workers with employment-based health insurance was two to three times greater than the percentage of their insured counterparts working fewer than thirty hours a week. We also found that there is a fairly hard-core group of small-business owners who do not want to provide health insurance benefits to their employees. Almost half of the employers in our survey who do not offer health insurance indicated that they were not interested in doing so. Usually these employers state that this lack of coverage reflects a lack of demand on the part of their employees, that they can recruit employees without it, and that most of their employees are covered elsewhere. Without doubt, however, cost is the primary reason given for why these employers do not offer health insurance. Many were as concerned about the rapid increase in premiums as with their current level, often citing

13 40 HE ALTH AFF AIRS Su mmer 1992 doubling of premiums after one or two years of initial enrollment. The Health Care for the Uninsured Program spawned several interesting projects that reduced the number of working uninsured in these four sites. For the younger firms that enrolled, coverage probably came sooner than would otherwise have been the case. Whether some of the other firms would have had access to or found other affordable plans is not clear. What is clear is that the impact of this relatively small private/ public-sector initiative was fairly limited. Larger efforts are called for if we want to make significant reductions in the number of people who lack health insurance coverage. NOTES For more on these projects, see W.D. Helms, A.K. Gauthier, and D.M. Campion, Mending the Flaws in the Small-Group Market, in this volume of Health Affairs. The nine Robert Wood Johnson Foundation-sponsored projects that eventually enrolled participant firms are located in Appleton, Wisconsin; Tucson and Phoenix, Arizona; Birmingham, Alabama; Denver/ Boulder CMSA, Ft. Collins, and Colorado Springs, Colorado; Tampa/ St. Petersburg/ Clearwater MSA and rural Tallahassee, Florida; Bath/ Brunswick and Skowhegan/ Somersct, Maine; Memphis, Tennessee; Flint and Marquette, Michigan; and Salt Lake City, Utah. Steve Heeringa at the University of Michigan s Institute for Social Research is preparing a final technical memorandum on the differences between the DMI and the ES-202 sample frames. He reports that the only significant difference between the two frames is that more sampled businesses on the DMI frame are unreachable or out of business than are the sampled businesses from the ES-202 data. For the most part, there have been only three national studies since 1980 that report information on small businesses and health benefits: (1) a mail survey conducted by ICF, Inc., for the Small Business Administration (ICF/ SBA) in 1987; (2) a mail survey conducted by the National Federation of Independent Business (NFIB) in 1989; and (3) a telephone survey undertaken by the Health Insurance Association of America (HIAA) in The ICF/ SBA study reported an overall response rate of 20 percent (with 45 percent of their sample representing employers with more than 100 employees); the response rate for the NFIB study was 29 percent (3 percent of the NFIB sample-which was drawn from their membership list-contained businesses with more than 100 employees); and HIAA had an overall 66 percent response rate (59 percent of the HIAA sample comprised businesses with more than 100 employees). Greater Denver Chamber of Commerce, Metro Denver Economic Profile, (Greater Denver Chamber of Commerce, 1990). Ken Thorpe and colleagues also found size and proportion of full-time workers to be significant determinants in their study of small businesses. See K. Thorpe et al., Reducing the Number of Uninsured by Subsidizing Employment-based Health Insurance, Journal of the American Medical Association (19 February 1992): Ibid. C.G. McLaughlin, The Dilemma of Affordability: Private Health Insurance for Small Businesses, in American Health Policy: Critical Issues for Reform, ed. R. Helms (Washington, DC.: American Enterprise Institute, 1992). W.K. Zellers, C.G. McLaughlin, and K.D. Frick, Small-Business Health Insurance: Only the Healthy Need Apply, Health Affiairs (Spring 1992):