Unbiased Analysis of Today's Healthcare Issues

Do small firms offer more generous health benefits?

Written By: Jason Shafrin - Feb• 09•06

Large firms offer more generous health insurance to employees…right????
While it is true that large firms are much more likely to offer insurance to their employees, small firms are actually more likely to offer insurance in which they pay for 100% of the costs. A December 2005 paper by Zawacki and Taylor (“Contributions to health insurance premiums: When does the employer pay 100%”) uses data from the Medical Expenditure Panel Survey-Insurance Component to establish this result.

One explanation is that insurance companies often require 100% employee enrollment before they will insure a small company. This requirement attempts to prevent adverse selection, where the healthy individuals would opt out of the plan. In order to induce each employee to participate, small firms may have to pay 100% of the health insurance cost.

Firms who offer 100% payment of health insurance premiums tend to be:

  1. ‘Younger’ firms (firms in existence for more than 20 years are less likely to offer 100% coverage).
  2. Non-profits versus for-profits,
  3. Firms with more high wage earners
  4. More unionized.

I have recreated a table from the Zawacki and Taylor (2005) paper demonstrating the above findings. Column 1 gives the percentage of establishments offering one insurance plan that pays 100% of the cost for single coverage; Column 2 shows the percentage of establishments offering one insurance plan that pays 100% for family coverage.


  Single Family
Firm Age    
<5 61% 45%
5-9 58% 44%
10-20 59% 42%
>20 53% 36%
Non-profit 63% 42%
For profit 53% 36%
Low Wage Earners    
>50% of workforce 46% 33%
<50% of workforce 61% 41%
PT Workers    
>50% of workforce 49% 37%
<50% of workforce 55% 36%
>25% of workforce 65% 54%
<25% of workforce 54% 36%

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