How Small Business Owners Get Health Insurance

Last year, KFF.org released an Employer Health Benefits Survey that found small businesses are much less likely than larger businesses to offer health benefits to their employees. Specifically, only 50% of small businesses with 3-9 employees offered health benefits compared with 98% of firms with 200+ employees. As a result, the employees of small businesses that do not offer coverage often rely on employer-based insurance through a family member or buying health insurance in the individual market. So, what do the owners do?

The following chart shows how small business owners with 1-24 employees got health insurance in 2011:

Interesting Notes from the Small Business Owner Health Insurance Analysis

• ~25% of small business owners are uninsured.

• ~30% of small business owners get health insurance on the individual market.

• ~40% of small business owners get employment-based insurance, either from their own job or through a family member. 

What Health Insurance Reform Means for Small Business Owners

Because the majority small businesses (~55%) get health insurance on the individual market or go uninsured, the biggest effects health care reform has on small business owners will likely be the changes in the individual insurance market (not the changes in the small business market). Specifically, the following changes to the individual market will impact the majority of small business owners:

1. Guaranteed issue and abolotion of rate-ups for pre-existing health conditions.

2. 3-1 limit on how much premiums can vary by age. 

3. Requirement that all insurers cover a standard set of essential health benefits.

4. Requirement to purchase health insurance, or else pay a tax penalty.

5. Availability of premium tax credits for individuals/families making less than 400% of FPL without affordable employer sponsored coverage. 

According to KFF.org, an estimated 60% of small business owners who are now buying insurance in the individual market have incomes less than 400% of the FPL and would be eligible for the new tax credits in 2014. Additionally, 83% of the owners who are now uninsured would be eligible for the new tax credits in 2014.

In your opinion, which market reforms will have a greater impact on small businesses owners and their employees?

Please answer with either A) Changes to the small business market or B) Changes to the individual market. Then, please give an explanation of why you answered the way you did.

Note: This should not be taken as legal or tax advice.