In 1998, whereas 96 percent of employers with 50 or more employees offered health insurance, 71 percent of employers with 10 to 49 employees provided coverage and only about 36 percent of employers with fewer than 10 workers offered health benefits to their employees.The primary reason small employers cited for not offering coverage was cost. Similar Premiums for Small And Large Employers May Mask Coverage Differences And Potentially Higher Costs to Small Employers for Those Not Insured

Average annual health insurance premiums—the total amount paid by both employers and employees—were nearly the same for small and large employers in 1998. Small employers generally purchased coverage with higher cost-sharing requirements for their employees compared to larger employers. In addition, workers covered through small employers are less likely to receive certain benefits. As a result, insurers spend a smaller share of small employers’ premium dollars on benefits and more on administrative and other expenses than they do for large employers’. Estimates of a group’s future expenses that are based on prior health care use tend to be more accurate the larger the group is. Nearly all states have restricted insurers’ ability to vary small employers’ premiums to some degree. Other State Efforts Have Had A Limited Effect on Affordability

States have undertaken other efforts to help small employers purchase health insurance, but have had limited success in addressing affordability issues. Attempts to reduce premiums by allowing insurers to offer less generous, scaled-back benefit packages have not been widely embraced by small employers. For example, see the following. These efforts are directed toward helping to make health insurance more affordable for small employers by subsidizing costs for the employers or their employees or by helping small employers gain some of the advantages large employers have in purchasing health insurance.
What GAO Found

Many small employers--those with 50 or fewer workers--do not offer health benefits to their employees. This is particularly true for employers with fewer than 10 workers. The families of workers employed by small employers are about twice as likely to be uninsured as households with a worker at a large employer. Despite efforts by Congress and the states to help small employers buy coverage, many small employers continue to cite cost as a major obstacle to providing coverage. Small and large employers purchasing health insurance generally had comparable premiums in 1998, but this comparison does not fully reflect the challenges facing small employers in providing health insurance for their employees. Although the premiums were similar, the health plans offered by small employers were slightly less generous on average--they had slightly higher average cost-sharing requirements for their employees and were somewhat less likely to offer some benefits, excluding, for example, mental health services and chiropractic care. Also, insurers' costs to administer employer-based health insurance and protect against potentially large health care costs result in a larger share of small employers' premium dollars being spent on these nonbenefit expenses. Nearly all states have passed laws that limit the ability of insurers to vary premiums charged to small employers on the basis of the group's risk factors, including health. Other state efforts to make insurance more affordable for small employers have had limited results. Few small employers appear interested in lower-cost benefit packages that require significantly higher cost sharing by individuals or that scale back benefits that are covered.