Employer-based health insurance coverage has eroded substantially, particularly in the small-group market. Small businesses and their employees have bit hit hard because of small-group purchasers are especially vulnerable to rising health insurance costs: First, small groups do not offer the advantage of pooling risk over a large population. Second, they have less purchasing power to negotiate favorable rates with health insurers.
Finally, small firms experience proportionately higher costs in setting up and administering a health insurance plan than do larger firms. These market imperfections have led some state governments to take an active role in the small-group market, where they have, for example, adopted rate-setting restrictions, established guaranteed issues, initiated premium assistance programs and created state-sponsored insurance pools.