November 1996

Grant Results


From 1992 to 1995, researchers from the University of Michigan School of Public Health conducted Phase II of the Small Business Benefits Study by resurveying the small business respondents from the four original Phase I cities with respect to their businesses, their benefits and their employees. They also added three sites to the survey.

The survey was designed to determine the features and costs of the health insurance plans offered by small businesses and to assess the factors affecting the willingness and ability of small businesses to offer insurance.

Cities surveyed in Phase I included Tucson, Ariz.; Tampa, Fla.; Flint, Mich.; and Denver. Additional cities in Phase II were Salt Lake City; Tulsa, Okla.; and Cleveland.

Key Findings and Conclusions

  • Many small business employees obtained medical insurance coverage through another source.
  • The majority of employers that do not offer health insurance to their employees are simply not interested in doing so.
  • Insurance underwriting is a significant barrier to small business coverage.
  • There was no significant change over time in those businesses that were surveyed in Phase I of the Small Business Benefits Study.
  • The investigator concluded that most small businesses will not voluntarily offer insurance coverage to their employees.

The Robert Wood Johnson Foundation (RWJF) supported this project through a grant of $704,236.

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Nearly 75 percent of the 34 million Americans who have no health insurance are employed full- or part-time, or are dependents of such employees. The majority of these uninsured are employees (or their dependents) of businesses with 25 or fewer workers. This statistic prompted The Robert Wood Johnson Foundation to initiate the Health Care for the Uninsured Program (HCUP) in 1986. The program was created to support the development and implementation of new public/private health financing arrangements at the state and local levels. Although many of the projects sponsored by HCUP used multiple strategies, the primary focus was interventions to extend health insurance coverage to small businesses.

The Small Business Benefits Survey (SBBS) was conducted in 1990 in four communities (Tucson, Ariz.; Tampa, Fla.; Flint, Mich.; and Denver, Colo.) as part of an evaluation of HCUP-sponsored projects in those cities. The SBBS was designed to enable comparison of businesses that chose HCUP-sponsored products to those that offered other insurance products and those that offered none. Information gathered from the survey was also used to determine the features and costs of the health insurance plans offered by small businesses and to assess the factors affecting the willingness and ability of the small businesses to offer insurance.

The survey found significant barriers to achieving higher rates of insurance coverage in the small business market. These barriers have contributed to the low rate of coverage in small businesses: half of the businesses surveyed did not offer coverage, and half of those stated that they would not offer coverage even with significant subsidies. While the initial SBBS focused on evaluating the small business intervention, Phase II focused on understanding the dynamics of health insurance in the small business sector and served as a follow-up survey to those businesses that participated in Phase I.

The grantee interviewed 45 insurance companies and 37 insurance agents in 1991. The interviews addressed such issues as how long respondents had been writing health plan policies for small businesses, and the types of plans available to small businesses. The interviews featured discussions about restrictive enrollment standards that could result in "redlining" or excluding certain types of businesses from coverage.

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The project resurveyed the Phase I small business participants in the original four sites and added a sample of small businesses in three supplementary sites (Salt Lake City, Utah; Tulsa, Okla.; and Cleveland, Ohio), for a total of approximately 2,300 businesses. The telephone survey included questions about the participants' businesses, their benefits, and their employees. Information was analyzed to:

  1. Define the current market for small business health insurance.
  2. Compare changes over time in firm and employee characteristics in businesses that offer insurance and those that do not.
  3. Compare insurance-related changes, such as participation, premiums, and eligible employees, in businesses that had offered coverage during Phase I.

In addition, a large telephone survey of insurers yielded information on underwriting procedures and insurers' perspectives regarding the lack of coverage in small businesses.

At the request of the Foundation, a chartbook, which reviewed characteristics of the uninsured and the small businesses for which they work, was compiled. Because approximately one year was spent compiling the chartbook, the investigator requested and was granted a 12-month, no-cost extension to the original 30-month grant. Other changes to the project included analyzing the Health and Retirement Survey data set at the University of Michigan instead of a three-year merged Current Population Survey (CPS) data set at the Urban Institute. Although the latter is a national data set, it was found to lack detailed information regarding health insurance and employer characteristics.

Five of the six original objectives were met: eliciting information about changes in the characteristics of businesses with and without insurance from 1990 to 1993; obtaining information about changes in the market for small business health insurance from 1990 to 1993; measuring the long-run impact of the HCUP-sponsored projects in local markets for health insurance; increasing the generalizability of the first SBBS; and updating and expanding information about insurers in the small business market.

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  • Approximately one-third of all small business employees working 17 hours or more per week obtained coverage through a source other than the employer.
  • The majority of employers that do not offer health insurance to their employees are not interested in doing so. Employee indifference is cited as the major reason. Often coverage is available to employees through another source (usually a spouse's policy), and employees prefer to be compensated with higher wages rather than receive health benefits.
  • Insurance underwriting and redlining (excluding certain types of businesses from coverage) impact a significant number of small businesses. Some 85 percent of insurance agents and 48 percent of insurance companies report redlining specific types of businesses. Some 80 percent of all businesses support a law that would require insurance companies to accept all small businesses that seek health insurance.
  • There was no significant change over time from business or employee participants who responded to both Phase I and Phase II of the SBBS.

Based upon the above findings, it was concluded that voluntary efforts by small businesses would not solve the problem of lack of health insurance coverage for their employees. Health insurance reform will be needed to guarantee coverage to this group of workers.


The results of this grant were widely disseminated. The chartbook (Small Business & Health Care Reform: Understanding the Barriers to Employee Coverage & Implications for Workable Solutions) reviewed the characteristics of the uninsured firms, the barriers that small businesses face in providing health insurance, and solutions to address these barriers. The chartbook was sent to more than 8,000 organizations and individuals in May 1994, including White House, Senate and House committee staff, administrative agencies, and more than 500 Chambers of Commerce in cities with a population of more than 50,000. Since the initial mailing, the grantee has received hundreds of requests for the chartbook and has sent additional chartbooks to Chambers of Commerce not initially targeted; businesses; state and local health care task forces; members of the Association for Health Services Research; and key reporters in Washington, D.C. The study was entered in the Congressional Record during the Senate Finance Committee hearings. In addition, specific data runs were requested by various offices, most notably the White House Task Force, the Congressional Budget Office, and the offices of Senators Kennedy and Riegle, and Congressman Dingle.

Articles reporting the study's results were published in Health Affairs, Journal of Health Economics and Health Services Research. McLaughlin gave numerous interviews (radio and print), most notably to Crane's Report (a general business journal), The Chicago Tribune, The New York Times, Business and Health, the American Association for Retired People, and The Boston Globe. A press release was picked up by the Associated Press news wire. McLaughlin presented the findings at the 1995 American Economic Association annual meeting, the Organization for Economic Community Development Conference on Small and Medium Enterprises; the American Hospital Association Executive Leadership Institute, the Wolverine Caucus in Lansing, Mich.; the University of Michigan Journalism Fellows Club; the University of Michigan Interflex Medical School Program; and the Michigan Employee Benefits Conference. A public use data tape is available.

In addition to the three published articles, one awaits publication, two have been submitted for publication, and three are in rough draft form. A full list of publications appears in the Bibliography.

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The grantee submitted a grant proposal to the Foundation to resurvey these small businesses a year after the current grant's completion. However, RWJF declined the grant subsequent to their decision to fund The Center for Studying Health System Change, which is capable of this type of follow-up.

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Study of Expanded Health Insurance Coverage in Small Businesses


University of Michigan School of Public Health (Ann Arbor,  MI)

  • Amount: $ 704,236
    Dates: March 1992 to August 1995
    ID#:  015150


Catherine G. McLaughlin, Ph.D.
(313) 764-5433

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(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)


Chernew M, Frick K and McLaughlin C. "The Demand for Health Insurance Coverage by Low-Income Workers: Can Reduced Premiums Achieve Full Coverage?" Health Services Research, 32(4): 453–470, 1997. Abstract available online.

Chernew M, Frick K and McLaughlin C. "Worker Demand for Health Insurance in the Non-Group Market: A Note on the Calculation of Welfare Loss." Journal of Health Economics, 16(3): 375–380, 1997.

McLaughlin CG. "The Dilemma of Affordability: Private Health Insurance for Small Businesses." American Health Policy: Critical Issues for Reform. Edited by R. Helms. Washington, D.C.: American Enterprise Institute Press, 1993.

McLaughlin CG and Zellers WK. Small Business and Health Reform. Ann Arbor, Mich.: University of Michigan Press, 1994.

McLaughlin CG and Zellers WK. "Shortcomings of Voluntarism in the Small-Group Insurance Market." Health Affairs, 11(2): 28–40, 1992. Also available online.

McLaughlin CG, Zellers WK and Frick K. "Small-Business Winners and Losers Under Health Care Reform." Health Affairs, 13(2): 221–233, 1994. Abstract available online.

Zellers WK, McLaughlin CG and Frick K. "Small-Business Health Insurance: Only the Healthy Need Apply." Health Affairs, 11(1): 174–180, 1992. Also available online.

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Report prepared by: Fran Karo
Reviewed by: Marian Bass
Program Officer: Joel Cantor

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