The small-group health insurance market remained stable over the last year, despite the uncertainty caused by the COVID-19 pandemic, a new report has found. However, the long-term health of the market remains uncertain, as the number of small employers offering health insurance has been decreasing over the years.
The analysis, released by the Urban Institute and the Robert Wood Johnson Foundation, said that small businesses generally place a high value on offering health benefits to their employees in order to attract and retain workers. However, costs continue to increase, putting pressure on smaller employers.
“While the market saw short-term relative stability during the pandemic, researchers say small-group insurance costs are increasing and the number of small employers offering health coverage is falling, continuing trends that pre-date the pandemic,” the Urban Institute said in a statement.
Holding steady during the pandemic
The report looked at the experiences of employers in six states: Arkansas, Minnesota, Montana, New Mexico, Pennsylvania, and Vermont. Although some market observers had predicted that the economic downturn that accompanied the pandemic would lead to employers dropping health insurance coverage, the study found that this was not generally the case.
“Though small businesses were among the employers most negatively affected by the pandemic, respondents indicated that few major changes in offer rates, employer contributions to premiums, or benefits have occurred in the last year,” the report said. The authors added that employers indicated they were willing to make sacrifices and do whatever it took to maintain insurance coverage for employees. “Through the pandemic we kept paying everyone’s health insurance, even when they were furloughed. That was pretty painful financially…but people can’t lose their health insurance during a pandemic,” said an employer from Minnesota.
The report also noted that segments of the economy that were hardest hit, such as retail and hospitality, are less likely to offer insurance in the first place.
Both private industry and the federal government worked to maintain health insurance benefits—the report found that insurers said that a number of insurers provided grace periods for payments and maintained eligibility for workers who had hours cut or were furloughed. Insurers also saw lower-than-anticipated claims during the pandemic, allowing them to provide premium discounts in some cases. In addition, the federal Paycheck Protection Program was cited by employers as a financial lifeline—allowing them to maintain benefits during 2020.
A need for better long-term strategies
The report emphasized that the good news from 2020 is tempered with concerns about the future of health benefits with small employers.
For example, the percentage of small employers who offer health insurance continues to decline. The report found that over the past 30 years, the share of employers offering small-group health benefits has decreased from almost half of businesses in this category to less than one-third. Prices continue to increase as well; premiums in the small group market have gone up an average of 4.5% annually in the past four years.
The report also noted that federal efforts to create new options for the small-group market have largely failed to gain traction.
“Market observers cited several reasons for this, but policymakers should bear in mind that small employers rely heavily on insurance brokers to help them with health benefit decision,” the report said. “Small employers are less likely to have a robust human resources department or in-depth knowledge of health benefits, leading them to rely heavily on brokers to learn about new options. Programs or policies that do not incentivize brokers and other professionals to promote them are unlikely to achieve much success, at least in the short term.”