Despite the recent downward trend in premium costs for healthcare insurance, employees at small companies have received little relief in out-of-pocket costs, according to new studies by J&H Marsh & McLennan and KPMG Peat Marwick.
The findings by New York-based JHMM show a large discrepancy between the out-of-pocket contributions paid by employees at large and small firms-$66 per month at firms with fewer than 200 employees vs. $46 per month at larger companies.
The KPMG study, conducted with the Washington-based Center for Studying Health System Change and the journal Health Affairs, notes out-of-pocket contributions by employees at small firms increased nearly fivefold between 1988 and 1996. During that low-inflation period, out-of-pocket costs for single coverage rose to $56 per month from $12 per month. For family coverage, the monthly cost rose to $175 in 1996 from $34 in 1988.
Out-of-pocket costs for employees at large firms also have increased, but at a far slower pace. While employees with single coverage at large companies had out-of-pocket costs of $13 per month in 1988-slightly higher than their peers at smaller companies-that increased to only $37 per month by 1996, more than 33% lower than at small firms. Family coverage rose from $29 per month in 1988 to $127 in 1996, 28% lower than costs at small firms.
The KPMG study notes it's already unlikely employees of small firms will have any employer-sponsored health insurance coverage. Only 40% of employees at companies with fewer than 100 employees were offered coverage in 1996, compared with 83% of employees at companies with more than 1,000 employees. Moreover, of 22 million jobs created in the U.S. between 1988 and 1995, 21 million were created by firms with fewer than 100 employees, according to KPMG.
The authors of the KPMG study conclude the potential outcome of such trends is serious: "Substantial anecdotal evidence suggests that employees are deciding that they cannot afford to insure their families." The authors conclude the healthcare purchasing practices at small firms also could be driving what they perceive to be a recent backlash against managed care.
"Employees are pushed out of conventional plans and into managed care without a choice," says Paul Ginsburg of the Center for Studying Health System Change.
Neither study reaches definitive conclusions regarding which factors are driving the discrepancies in out-of-pocket costs. However, KPMG notes employees at small firms are more likely to be offered just one health plan than workers at larger companies. Last year, 80% of small firm employees were offered only one plan, compared with 47% of workers at large firms.
More companies also are requiring contributions from employees, according to KPMG. While 29% of small firms required contributions for single coverage in 1988, that percentage increased to 64% in 1996. For family coverage, 80% of firms required contributions last year compared with 64% in 1988.
The KPMG study also notes employees at smaller firms tend to receive more austere benefits, along with higher deductibles and longer waiting periods before coverage takes effect, even though managed-care plans have proved popular with small companies.
Citing data from the Health Insurance Association of America, the KPMG study notes that in 1988 some 88% of companies with fewer than 100 employees purchased indemnity coverage (compared with 69% of large firms), while only 10% used managed-care products. By 1993, indemnity coverage had fallen to 50% at small firms, and in 1996 it had dropped to 29%.
"The limited choice of plans and the incredibly rapid transition to managed care among American workers in small firms may explain some of the current backlash we're seeing against managed care," says Jon R. Gabel, a principal at KPMG's Arlington, Va., office.
It appears doubtful the future will hold much improvement for employees at smaller firms. Although the JHMM study concludes employers' costs dropped 1.6% nationwide last year for firms with fewer than 1,000 employees, employers interviewed for the survey believe costs will increase an average of 8% for 1998.
"At this point, most mid-sized employers have already enjoyed the one-time reduction in cost that comes from moving employees out of indemnity plans," says Richard Elliott, who heads JHMM's employee benefits operation for middle-market companies.
"Health plans want to move premiums upward again and are having a rough time doing it with large employers, so much of that will likely be shifted to small employers," says Charles Hartwig, a principal with New York-based consulting firm William M. Mercer, a subsidiary of JHMM.
Both the KPMG and JHMM studies conclude new legal mandates, such as the federal Health Insurance Portability and Accountability Act of 1996, which allows employees to retain their coverage when they change jobs, will stop most small employers from imposing waiting periods for coverage, meaning one of their key cost controls will be lost.
JHMM's Elliott believes there's another silver lining for employees of smaller firms: Because of the strong economy, small employers may have to start offering improved benefits to retain good workers.
"One of the primary issues these days is finding good people," he says. "Whereas in the past, the driving force in controlling benefits is cost, they're now turning their attention to the benefits package in a campaign to make their companies more attractive places to work."