Small Bus. Health Insurance Premiums Growing Dramatically, But Growth Has Slowed, According to New JPMorgan Chase Institute R...
November 16 2017 - 9:30AM
Business Wire
Report shows small business owners typically
spend $500 per month on health insurance premiums
Today, the JPMorgan Chase Institute released new data showing
small business owners who purchase their health insurance on the
individual marketplace are facing growing premium costs that are
outpacing revenues operating expenses. In 2014, 16 percent of
individual market participants were self-employed.
While growth rates in insurance premiums have slowed in recent
years, from 10 percent in 2014 to 7 percent in 2017, typical small
business owners still spend about $500 per month on premiums to
cover themselves and/or their families. Additionally, the data show
small business owners who paid at least 6.5 percent of their
expenses toward healthcare costs in 2016 were more likely to stop
making healthcare payments and perhaps left the marketplace
entirely in the following year.
The report, Paying a Premium: Dynamics of the Small Business
Owner Health Insurance Market provides insight into the decisions
of small business owners as participants in the individual health
insurance market and a unique perspective into the magnitude of
health insurance premiums relative to other operating expenses
small business owners face.
"The majority of America’s small business owners face a real
financial burden when purchasing insurance for themselves and their
families," said Diana Farrell, President and CEO, JPMorgan Chase
Institute. "Small businesses operate under fragile
circumstances, with the average small business having only 27 cash
buffer days. These businesses are significantly vulnerable to
revenue shocks and health insurance premiums represent a material
and growing operating cost for these business owners. As
policymakers consider the path forward on healthcare, it’s
important to keep these small businesses in mind as we look for
solutions."
More than 75 percent of small businesses are nonemployer firms,
including sole proprietors, contractors and freelancers,
representing the overwhelming majority of America’s small
businesses. Of the 29.6 million small businesses in the US
in 2014, 23.8 million were non-employer firms.
While issues faced by small employers who offer health insurance
have drawn significant attention, there is limited research on the
topic for nonemployer small businesses.
Some of the report’s key takeaways include:
- Health insurance premiums have
increased dramatically in recent years, but the rate of growth has
decelerated over time. Small business owners saw their premiums
grow 10 percent in 2014, though that growth rate declined to 7
percent in 2017.
- Health Insurance premiums for small
business owners have grown significantly faster than their
operating expenses. In 2014, the median health insurance
premium burden was 2.3 percent. In 2017, the median burden among
the same set of firms had grown to 2.9 percent, increasing about
0.2 percentage points each year.
- Small business owners with the
highest insurance burdens are leaving the individual market, and
possibly going without health insurance. Forty-two percent of
firms in the sample with health insurance payments amounting to 6.5
percent or more of their expenses in April 2016 were no longer in
the sample a year later. Firms with high health insurance premium
burdens were more likely to leave the sample the following year –
as opposed to firms with lower health insurance premium burdens –
most commonly because they discontinued those payments.
The sample was constructed from more than 30,000 nonemployer
firms who hold business banking deposit accounts with Chase and
also make regular health insurance premium payments from those
accounts. The JPMorgan Chase Institute used the 117 million
anonymized transactions from these businesses to produce a monthly
view of health insurance premium payments and other operating
expenses from January 2014 to April 2017. To support some analyses
of within-firm payment changes, the JPMorgan Chase Institute also
constructed a panel sample, comprised of 3,505 firms that appear in
the cross-sectional sample (described above) every month.
Key Findings: Paying a
Premium: Dynamics of the Small Business Owner Health Insurance
Market
- Health insurance premiums are a
material expense for nonemployer business owners, who spend about
$500 per month on health insurance premiums.
- The typical nonemployer business owner
paid health insurance premium payments that were 2.5 percent of
overall expenses in a given month in 2017.
- In addition to being a material
expense, the median premium payment has increased over the last
three years (April 2014 – April 2017) by 11.6 percent, from $449 to
$502.
- Health insurance premiums are an
increasing economic burden for nonemployer business owners, whose
health insurance payments have grown substantially since 2014.
- Our longitudinal data allows us to
analyze the experiences of individual firms. The dynamism of the
small business sector can mask those experiences in aggregate
cross-sectional data. We investigated intra-firm health insurance
premium paymentgrowth, not only in our full sample that allows
entry and exit, but also in a longitudinal panel of firms that are
present in every month of our sample period.
- Nonemployer small businesses experience
typical HIPP growth rates of 7-10%.
- Most nonemployer firms experienced
substantial health insurance premium growth, significantly faster
than the growth of their other operating expenses.
- In 2014, the median burden (health
insurance premium payments as a share of all expenses) was 2.3
percent. In 2017, the median burden had grown to 2.9 percent,
increasing about 0.20 percentage points each year.
- Small business owners who maintain
health insurance are left with a decreasing share of funds to spend
on their business or use to support their families.
- The growth rate of health insurance
premiums experienced by individual firms has slowed since 2014.
- The median within-firm growth rate of
health insurance premiums slowed from about 10 percent in 2014 to
about 7 percent in 2017.
- Nonemployer businesses for whom
health insurance premiums are most burdensome are exiting the
health insurance market.
- 42 percent of firms in the sample with
health insurance payments amounting to 6.5 percent of expenses or
more in April 2016 were no longer in the sample a year later.
- Firms with high HIPP burdens were more
likely to leave the sample the following year – as opposed to firms
with lower HIPP burdens – most commonly because they discontinued
HIPP payments.
- We don’t have insight into the reason
small businesses discontinued HIPP payments, but if they stopped
paying health insurance altogether, their businesses and households
may be especially vulnerable to shocks due to large and unexpected
health care expenditures.
- We found no evidence suggesting that
small business owners were going out of business because of high
HIPP burden.
- Nonemployer small business health
insurance premium payment levels and burden varied widely within
metropolitan area and industry.
- Median HIPP levels are not consistent
across location of a business, or industry in which a business
operates.
- Premium payments within metro areas
also varied over time, in addition to variation in premium payment
burdens.
- There was no clear relationship between
median HIPP level and burden by industry.
C lick here to read the full report.
About the JPMorgan Chase Institute
The JPMorgan Chase Institute is a global think tank dedicated to
delivering data-rich analyses and expert insights for the public
good. Its aim is to help decision makers–policymakers, businesses,
and nonprofit leaders–appreciate the scale, granularity, diversity,
and interconnectedness of the global economic system and use better
facts, timely data, and thoughtful analysis to make smarter
decisions to advance global prosperity. Drawing on JPMorgan Chase
& Co.’s unique proprietary data, expertise, and market access,
the Institute develops analyses and insights on the inner workings
of the global economy, frames critical problems, and convenes
stakeholders and leading thinkers. For more information visit:
JPMorganChaseInstitute.com
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version on businesswire.com: http://www.businesswire.com/news/home/20171116005218/en/
JPMorgan Chase InstituteCaitlin Legacki,
202-585-3702caitlin.a.legacki@jpmorgan.com
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