02/02/2006
CONTACT: Melissa Sharp, (202) 554-9000
WASHINGTON, D.C.—As the high cost of health care continues to burden small-business owners, a new study released today by the National Federation of Independent Business Research Foundation finds that the administrative costs for Small-Business Health Plans (formerly known as AHPs) are significantly lower than traditional HMO and PPO plans.
The study, Administrative Costs Accruing to Association Health Plans, examined five cases of operating SBHPs and analyzed factors such as administrative costs, administrative functions and administrator’s perspectives of the SBHPs to traditional non-SBHPs as well as the competitive dynamics of the health-insurance market.
“When the performance of SBHPs in the study are compared to other health-care benchmarks, the administrative costs for SBHP-study participants were on average 14 percent lower than the more traditional plans,” said William Dennis, senior research fellow at NFIB’s Research Foundation.
Data shows that the SBHPs achieved lower administrative costs due primarily to the skillful combination of in-sourcing and out-sourcing administrative functions. Participants in the SBHPs chose to in-source sales and marketing functions and out-sourced other functions such as accounting, case management and claims adjudication.
“By efficiently managing the administrative functions of health insurance, Small-Business Health Plans can keep costs to a minimum for employers and their employees,” said Dan Danner, executive vice president of NFIB. “This study reaffirms the need for the U.S. Senate to take action on SBHPs. These plans give small-business owners an affordable opportunity to offer health coverage to their employees and will improve the overall health-care market by introducing new competition. Small-business owners and their employees deserve access to these cost-saving plans.”
Legislation authorizing SBHPs has passed the U.S. House of Representatives eight times, but has yet to pass in the Senate. NFIB and its members hope that these findings will persuade senators to pass Small-Business Health Plans this year.
Key findings:
- The administrative costs of SBHPs are lower than the administrative costs reported for other small insurance health plans, for-profit Medicaid plans, and not-for-profit Medicaid plans.
- The SBHPs in the study exhibited long-term stability in administrative costs. The data suggests this is a result of effective cost management.
- Costs declined an average of 1.3 percent year-to-year, compared with Blue Cross Plans that exhibited increases in administrative costs of 6.1 percent annually.
- The presence of SBHPs in the health-insurance marketplace increases competition and may contribute to containing the skyrocketing costs of employee-health benefits.
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The National Federation of Independent Business (NFIB) is the nation’s largest small-business advocacy group. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its 600,000 members in Washington and all 50 state capitals.
