In the United States, many small businesses offer health care coverage as an employment benefit.
In the United States, the majority of people under age 65 receive health care coverage through their employers as a part of a group plan, according to a 2005 Small Business Administration report. The cost of this coverage is especially significant for small businesses, as they tend to pay more for this employee benefit than do large companies. Many small businesses are additionally required by state laws to pay for health care insurance that covers job-related injuries. Effective small business management requires planning for significant costs, such as health care expenses.
Estimated Costs
Businesses' health care costs vary considerably by the size of the firm and industry sector. According to the National Federation of Independent Business, businesses in the small group market -- those with more than 100 but less than 1,000 employees -- have an average annual premium of $4,260 for individual employee health insurance, at the time of publication. Nearly all businesses of this size incur health insurance costs, as the National Federation of Independent Businesses reports that over 96 percent of companies with at least 50 workers offer their employees this benefit.
Comparison with Large Firms
Small businesses generally pay higher costs for health insurance than larger firms, when controlled for service value. Even though large companies with over 1,000 employees paid $536 more annually per employee than small businesses, the National Conference of State Legislatures estimates that smaller companies had to pay 18 percent more for the same health care services than larger companies. The higher amount paid by big firms is largely a result of their ability to afford more extensive health care packages.
Cost-Sharing with Employees
While the employer contribution to a health insurance plan is substantial, sometimes employees also generally pay part of the cost. According to the NFIB, more small businesses pay the full cost of an insurance plan than large businesses. NFIB estimates that 40 percent of small firms cover the whole cost, versus 10 percent for large firms. On average, small firms cover 86 percent of an individual's premium costs, with the employee picking up the rest.
Workers' Compensation Costs
State and federal regulations also require small businesses to pay for insurance to cover any health care costs associated with workplace injuries. This cost, called workers' compensation insurance, can vary considerably depending on the risk of workplace injury and location. The national average cost to employers for workers' compensation insurance was $3.71 for each $100 of payroll as of September 2010, according to the Virginia Economic Development Partnership and the Department of Labor. Rates also vary considerably according to the nature of the work. Insurance for employees at lower risk for workplace injury is less expensive than those in higher risk jobs.
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