NCPA - National Center for Policy Analysis


August 14, 2008

Health insurance costs for small companies have risen 129 percent over the last eight years, with employees in the nation's smallest firms paying an average of 18 percent more in premiums for the same benefits as those in the largest firms, says the National Federation of Independent Business (NFIB).

In July, the House Small Business Committee introduced the Small Business Cooperative for Healthcare Options to Improve Coverage for Employees (CHOICE) Act, which would let small firms pool their employees through voluntary state health cooperatives, helping to defray costs by providing reinsurance for excess claims. This followed the Small Business Health Options Program Act (SHOP) -- that would allow businesses with staff up to 100 workers to band together in a statewide or nationwide pool to obtain lower health insurance prices -- that was introduced in the Senate in April.

These bills are detailed, but there are several key differences:

  • CHOICE uses the pooling feature to spread the risk of the high cost of claims through the formation of cooperatives that pay benefits when the annual maximum for the health policy purchased has been exceeded.
  • SHOP uses pooling to leverage purchasing power, letting members choose from a range of insurers who would be competing for their business.
  • However, both encourage a new marketplace that would have a common set of rules to enable the health insurance market for small business to increase efficiencies and economies of scale.
  • SHOP has been endorsed by the NFIB, which has 350,000 members and advocates on behalf of America's 16 million small business owners.

Yet, many questions remain unanswered, including how they will be received by regulators and the insurance industry.  The fact that they have garnered bipartisan support is a sign that Congress appears ready to find a solution to the small business health-care gap, regardless of which party controls the White House after November's presidential elections.

Source: Deborah L. Cohen, "Health care debate may hinge on pooling," Reuters, August 11, 2008.


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