May 2006

Small firm employees pay more for health insurance

Employees in the smallest firms (1-9 workers) pay an average of 18 percent more in health insurance premiums than those in the largest firms (1,000+ workers), when actuarial value — the percentage of total medical expenses paid by a health plan — is taken into account, a new study finds.

Researchers found that type of health plan is the key determinant of both actuarial value and adjusted cost. The adjusted premiums are 25 percent higher for indemnity plans and 18 percent higher for preferred provider organization (PPO) plans than Health maintenance organizations (HMOs).

Higher administrative costs from marketing, medical underwriting (the process by which insurers assess medical risk), and greater risks are some of the factors that contribute to the difference in premiums, say Jon Gabel, vice president of the Center for Studying Health System Change, and colleagues, authors of the new study published in the May/June issue of the journal Health Affairs.

Employees in states with large urban populations, such as California, Massachusetts, New York, and Pennsylvania, also tend to get more value for their premium dollar than those in rural states. Maine, West Virginia, Wyoming, and Wisconsin were states where employers and employees got the least value for their money when authors adjusted premium costs for the quality of benefits. Other states with the lowest adjusted premiums are Hawaii ($2,717), Alabama ($2,981), and Arizona ($2,983).

EurekAlert, www.eurekalert.org

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