Health Care and Micro Business
BY JON BAILEY, CENTER FOR
RURAL AFFAIRS RESEARCH & ANALYSIS PROGRAM DIRECTOR
Several recent studies highlight the continuing health
care challenges facing small and micro businesses.
Analysis of these show health insurance is becoming an
economic development issue and is harming small and
micro businesses’ ability to compete and attract
The most important immediate consideration in any
discussion of health care benefits and small businesses
is cost. The bottom-line finding in any study or survey
is that small businesses are increasingly being priced
out of the health care benefits game.
The Annual Employer Health Benefits survey released by
the Kaiser Family Foundation and the Health Research and
Education Trust in September makes that abundantly
clear. The 9 percent average health care benefit premium
increase last year was three times greater than the
growth in wages and two and a half times greater than
the rate of inflation in the same period.
Health insurance premiums have risen by 73 percent in
the past five years. According to the Kaiser report, the
average annual premium for family health insurance
coverage ($10,880) is now higher than the salary paid a
full-time minimum wage worker.
To Offer or Not to Offer?
With health care benefit premiums soaring, it’s no
wonder that fewer small businesses are offering health
insurance to their employees. Since 1996, the total
number of employers offering health care benefits to
employees has decreased from 69 to 60 percent. According
to the Kaiser report, small business employers accounted
for nearly the entire decline.
Less than half of the smallest business (those with less
than 10 employees) offer employee health benefits. And
that number is decreasing significantly – from 53
percent in 1996 (and 58 percent in 2002) to 47 percent
in 2005. In just three years, nearly one-in-five of
America’s small businesses dropped health benefits for
What about the Smallest of Small Businesses?
The National Association for the Self-Employed (NASE) in
its recent report, Health Coverage and the
Micro-business: A National Perspective, found that only
43 percent of small businesses presently offer health
benefits to their employees or plan to offer such
benefits in 2005. And, as with the Kaiser report, that
number decreases as the number of employees decreases
and as the business gets smaller.
Over three-quarters of self-employed do not provide
health benefits through the business, and over 70
percent of businesses with two employees do not provide
health insurance. Eighty-three percent of firms with
gross sales under $50,000 do not offer health insurance.
The NASE results mean that the traditional American
practice of providing health care benefits through
employment is on the decline (particularly among small
This represents a shift of premium costs to the employee
(at a time when premium costs are far outpacing wage
increases, thus representing a real decrease in wage
levels for some workers) or a shift to public programs
such as Medicaid or children’s health insurance
An increase in the number of uninsured, especially among
working adults, is one outcome of this trend. The
long-term meaning is that the traditional American
system of providing health care benefits is eroding
without a real alternative for affordable, comprehensive
coverage in place.
Barriers to Offering Health Insurance Benefits
Really, among small business there is only one barrier
to offering health insurance – cost. In the NASE report,
nearly three-quarters of the businesses that did not
offer health insurance identified cost as an important
barrier, and 62 percent identified cost as the single
most significant barrier.
Similar results were found in Nebraska. The Bureau of
Business Research at the University of Nebraska-Lincoln
found in its September 2005 Business in Nebraska report
that “health care benefit costs” represent the primary
cost reduction priority for businesses in the state.
What Can Be Done?
Health care benefits are crucial to the future of rural
Americans. One can argue health insurance issues a
variety of ways – social justice, moral, religious,
basic health outcomes. But all of those valid arguments
can be combined with the most basic of arguments –
If we advocate for an entrepreneurial rural economy, we
must also advocate for a health insurance system that
serves entrepreneurs and small businesses (both owners
and labor). To do otherwise dooms rural communities to
labor challenges as workers seek employment with
benefits at larger firms in larger communities, fewer
entrepreneurs and businesses, and, ultimately, a less
Over the next year the Center for Rural Affairs will
develop a plan to address these issues to benefit rural
communities and rural businesses. We welcome your input
on these matters.