Balance Health Coverage and Small-Business Concerns

MORE than 33 million Americans - 15 percent of the total population - are without health insurance. The other 85 percent either have employer-provided coverage, qualify for Medicare, Medicaid, or veterans medical benefits, or have privately purchased insurance. The lack of medical insurance can be financially catastrophic to a family hit with heavy medical expenses. Who are those vulnerable 33 million? We know who they are not. For people 65 and over, health insurance is virtually universal. Approximately four-fifths of those without health insurance are working or are family members of those in the work force. Why are they not covered? After all, most workers (about three-fourths) are provided health insurance by their employers; another tenth receive governmental medical benefits.

Are some employers cheap and heartless while others are generous and caring? They may be, but looking at the facts is illuminating. Virtually all companies with 500 workers or more provide health care coverage. Approximately 97 percent of the people in companies with 100 to 499 employees are covered, 94 percent in the case of companies with 25 to 99 people on the payroll.

The serious lack of coverage occurs in the smaller businesses. Only 70 percent of the employees in companies with a work force of 10 to 24 are covered - the lack of coverage (30 percent) is double the national average. The problem is far greater at the smallest employers - those with fewer than 10 people on the payroll. Only one in three firms in this category offers health benefits. Clearly, the smaller the employer, the less likely is there to be a company-sponsored medical plan.

Several explanations - in addition to greed - come to mind (we'll get back to greed). Employer-provided insurance is a ``group'' plan, benefiting from the economics of large-scale operation. The unit cost (per employee) is lower when administrative costs can be spread over a larger number.

Moreover, a costly medical case can be covered by a large group without requiring a significant increase in the employer's annual premium. In contrast, in a very small group, the same expensive illness may result in a large percentage rise in the cost of insurance.

As a result, health insurance premiums per employee may be two or three times as high for the small company as for the large one. Many modest-size enterprises cannot absorb such higher costs and remain competitive. Some insurance companies have stopped offering health policies in the smallest firms (25 employees and under) because they cannot meet the costs even at those higher premiums.

Insurance carriers also encounter a ``moral hazard.'' The temptation is great for the owner of a small business to hire (and thus add to the insurance rolls) a relative diagnosed with a serious disease. That raises the medical costs of the group astronomically.

What can be done to provide more health insurance coverage? Most suggestions do not differentiate between large and small employers. They would have the government play an increased role in the financing, if not the provision, of health care across the board.

However, the full potential of the private sector has not yet been explored. Some trade associations and local chambers of commerce have established voluntary group health plans for their members. This provides some of the economies of scale now achieved by large employers.

Another approach involves the state insurance commissions, which mandate the minimum content of acceptable health plans. The commissioners are the focal point of great pressure from special groups of medical practitioners that want their services to be included. In some states, hair transplants and cosmetic surgery must be covered. These state commissions do not realize that their generosity to special medical groups imposes a hidden cost - forcing many smaller employers to abandon their health insuranc e plans as too costly.

The commissions should move in the opposite direction, allowing the insurance carriers to offer lower-priced, stripped-down plans to small employers. We can anticipate howls of outrage from the suppliers of the medical services that would be excluded from the plans.

But it would be far better to make modest health insurance plans affordable to all businesses - and thus employees and families - than to maintain the status quo of increasingly costly coverage available to fewer and fewer people. Voltaire's dictum comes to mind, ``The best is the enemy of the good.''