STATEMENT
of the
Honorable Nydia M. Velázquez, Chairwoman
House Committee on Small Business
“Limited Options for Small Businesses in the Small Group Market”
January 23, 2008

It is clear that our economy is facing many challenges and small businesses know this better anyone.  Whether it’s finding access to adequate capital during a credit crunch or dealing with today’s overall uncertainty, small businesses are confronting many obstacles to success.   Despite the growing list of concerns, something that continues to top that list is access to affordable health insurance.

Since 2001, small businesses have been confronted with annual price increases for health insurance ranging from six percent to over ten percent.  During that time, the average small business has seen their premiums double.   This has forced many entrepreneurs to decide whether they can continue to offer coverage.

These rising costs are clearly having an impact.  According to the Small Business Administration, price is the most significant factor influencing the decision of small firms to offer health insurance.  But price is not the only factor.

Today’s hearing will address the growing cost of health insurance for small businesses, as well as highlight the variety of challenges small firms face in offering health coverage.  The panelists before us will explain how difficult it is for small firms to find, keep, and administer health insurance plans.  Each of these challenges influences whether a small firms will offer coverage. 

Unfortunately, the stories we hear today are not out of the ordinary.  Similar struggles could be told by nearly any business in any town across the country. 

The first obstacle small firms usually confront in offering coverage is identifying health insurance options.  There are no one-stop locations where these entrepreneurs can identify available health care options and compare plans.  This only adds to the disproportionate administrative burden smaller firms face in comparison to their larger counterparts.

Small businesses in rural America often face greater difficulty, where physician shortages and limited access to health services discourage insurers from offering coverage.  This can lead to one carrier being the only game in town which can drive up overall cost.  Because access to insurance is restricted, many small business owners simply abandon the search for small group insurance. 

Managing a plan also creates additional costs for these companies.  Small business owners must devote valuable resources working with vendors, handling insurance paperwork, and addressing employee claims issues.  Because small firms often do not have HR departments or brokers, owners are forced to take time away from their businesses to ensure coverage for their employees.   

Along with the challenge of offering insurance, small firms regularly struggle with keeping their insurance plans affordable.  A major problem is the uncertainty created by “high cost claims.”  Too often, minor surgeries, pregnancies, and other basic health care treatment that are part of everyday life, result in double digit rate increases. 

The fact these businesses are looking reveals one of the largest hidden costs of health insurance.

The goal of this hearing is to bring into focus these and other very real problems faced by small firms every time they offer or consider providing insurance.  This is the third hearing this Committee has held on the issue of health insurance access and affordability.  The problem is complex as it is severe for small businesses.

We have with us small business owners from around the country.  I want to thank you for taking the time away from your firms to discuss these challenges.  As Chairwoman of the Small Business Committee, I plan on keeping this issue in the spotlight because it is so important to firms across the country.