It has been the conventional wisdom that small businesses are getting killed on healthcare costs and we’ve heard anecdotal evidence to support this when we’ve presented our research on the various costs associated with doing business in Massachusetts.
But Charlie Baker at Harvard Pilgrim begs to differ, and he’s even got internal Harvard Pilgrim data to prove it. He notes:
Small businesses, on average, had lower medical claims expenses per member than larger businesses, and lower health insurance premiums(!). In fact, much lower. On average, per member premiums for small businesses were 10 percent lower than the premiums paid by larger businesses, consistent with claims costs that were also about 10 percent lower.
Why? Mr. Baker explains:
I think it comes from the pricing rules for small businesses. Small group rates are regulated at the state level, and the highest price can’t be any more than a defined percent of the lowest price, and the group needs to be priced and managed “in toto.” Put more simply, if the highest price is $100, then the lowest price can’t be below $50 — no matter what the demographic or medical expense variance might be across all small businesses.
On the other hand, larger company premiums are priced more directly on the calculated medical expenses of each group, meaning there is no ceiling and no floor for large groups overall. If one group pays $100 per person, another can pay $50, or $25, or $200 — depending on their own medical expenses.