Aprimary reason for the relatively low level of health insurance

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1 DataWatch Small-Business Winners And Losers Under Health Care Reform by Catherine G. McLaughlin, Wendy K. Zellers, and Kevin D. Frick Abstract: To meet its goal of universal health insurance coverage, the Clinton health plan requires all employers to offer health insurance to their employees. Using survey data on more than 2,200 small businesses, we estimate how many firms and employees would be affected by this mandate and calculate the financial burden, adjusting for the small-business subsidies recommended in the Clinton plan. Because of the payroll caps, almost 60 percent of small businesses that now offer insurance will experience a reduction in premiums. The average reduction is approximately $1,500 per full-time equivalent (FTE) per year. The majority of firms that offer insurance and face an increase in liability under the Clinton plan will incur an increase of less than $1,000 per FTE per year. Firms that do not now offer insurance will incur, on average, a liability of $500 to $900 per FTE. Aprimary reason for the relatively low level of health insurance coverage among small-business employees is a lack of affordable insurance products. 1 Some workers and businesses also face structural barriers, such as redlining (eliminating entire business categories from coverage), and attitudinal barriers, on the part of both employees who do not want to trade wages for health insurance and employers who do not want to make health insurance coverage available to their employees. 2 Various health care reform proposals have included measures aimed at reducing small businesses' financial and structural barriers to health insurance. The Clinton health reform proposal, for instance, has a goal of universal health insurance coverage. To reach this goal, the proposal would require all employers to offer health insurance to their employees and to share the premium payment. Other federal health care reform proposals and legislative efforts in several states range from replacing employment-based health insurance with individual insurance to encouraging the voluntary formation of small-business purchasing pools. 3 Most of these proposals include some modification, if not outright elimination, of underwriting practices that exclude individuals or businesses. There has been considerable debate about the effect of the Clinton mandate on the small-business community and disagreement about Catherine McLaughlin is associate professor, Wendy Zellers is senior research associate, and Kevin Frick is research assistant in the Department of Health Services Management and Policy at the University of Michigan in Ann Arbor.

2 222 HEALTH AFFAIRS Spring (II) 1994 whether proposals that do not mandate coverage at either the firm or individual level are likely to increase coverage. We asked more than 2,200 small businesses in seven sites about characteristics of the firms, including information about their health insurance coverage, the wages and insurance coverage of workers, and attitudes toward various policy options. For the purposes of this survey, small businesses were defined as those with twenty-five or fewer employees working more than seventeen hours per week. The sampling frame came from Dun and Bradstreet's DMI (Dun's Marketing Inclusion). Self-employed persons were omitted from the sample. We contacted 2,759 eligible firms and completed interviews with 2,241, resulting in an overall response rate of 81 percent, which is substantially higher than in most surveys of small businesses. The seven sites were Cleveland, Denver, Flint, Pittsburgh, Portland, Tampa, and Tucson. The telephone survey was conducted between October 1992 and February Using these data, we estimate how many small businesses and employees in these seven locations would be affected by a mandate, the percentage that would be eligible for the subsidy, and how many would experience an increase in or reduction of liability. We also report the results of local efforts in some of these cities to increase coverage without mandates. The Effects Of The Clinton Mandate Coverage. Our results indicate that percent of businesses with fewer than twenty-five employees now offer health insurance. The level of coverage increases with firm size, even within this group of small businesses (Exhibit 1). Under the Clinton plan, one-third to half of these small businesses will be required to begin offering insurance to their employees. Businesses that already offer insurance also will be affected by this mandate. According to our survey, approximately 8 percent of full-time workers are not eligible for their firm's health insurance plan, and another 24 Exhibit 1 Percentage Of Finns That Offer Health Insurance, By City And Size Of Firm, 1993 City Cleveland Denver Flint Number of workers % % Pittsburgh Portland Tampa Tucson Note: Firm size categories calculated based on the number of persons working seventeen hours or more.

3 DATAWATCH 223 percent of eligible full-time workers choose not to participate. The level of eligibility and the overall participation rate is lower for part-time workers. Half of the part-time workers who work more than seventeen hours a week are not eligible for their company's plan.4 Approximately one-fourth of those part-time workers who are eligible choose not to participate. The definition of who is eligible sometimes reflects insurance company underwriting policies and sometimes employer preferences. The decision to participate is influenced by several factors. Affordability is clearly an issue. In some of these cities workers who do participate in their firm's plan earn, on average, 50 percent more than workers who do not participate. Availability of family coverage through a spouse's employer also plays an important role. Approximately one-fourth of workers working seventeen or more hours in firms that offer health insurance have coverage only through another source. More than half of the workers employed by firms that do not offer health insurance are reported to have coverage through another source. Under the Clinton plan these "free riders" will no longer be able to shift the cost of health insurance coverage to their spouse's employer.5 In some cities fewer than half of full-time workers participate in employment-based health insurance plans. Including part-time employees working more than seventeen hours a week reduces the level of coverage to below 50 percent in all but one city (Exhibit 2). Requiring employers to cover all employees working more than ten hours a week represents a dramatic increase in liability. At the same time, altering the source of coverage for the 17 to 37 percent who receive their only coverage through their spouse's employment-based insurance will shift liability away from other employers. Exhibit 2 Percentage Of Employees With And Without Employment-Based Insurance, 1993

4 224 HEALTH AFFAIRS Spring (II) 1994 In Tucson approximately 20,000 workers in small businesses participate in employment-based health insurance, which represents 36 percent of small-business employees. The Clinton mandate would shift the coverage now received by more than 18,000 workers from another source to their place of employment and add an additional 16,000 workers who now lack health insurance. In Portland, where small businesses are more likely not only to offer health insurance to their workers but also to have a higher percentage of those workers eligible and enrolled, the redistribution effect would be smaller: Approximately 72,000 workers now receive employmentbased health insurance (56 percent), 26,000 are covered through another source, and 31,000 lack insurance. Winners and losers» The Clinton proposal couples the mandate with a premium payment cap of 7.9 percent of total payroll for all firms. In addition, it recommends subsidies to low-wage businesses with fewer than seventy-five FTE employees in the form of reduced payment caps. The maximum liability for a firm with fewer than twenty-five FTE employees whose average annual salary per employee is less than or equal to $12,000 is 3.5 percent of total payroll. This liability gradually increases to 7.9 percent of total payroll as the average annual salary rises above $24,000. According to our survey results, approximately 80 percent of businesses with fewer than twenty-five employees have an average annual salary per FTE employee of less than $24,000 and therefore will be eligible for this subsidy (Exhibit 3). In a city the size of Denver, this translates into almost 30,000 firms. 6 This high degree of eligibility reflects, to a large degree, the relatively low wages of workers in the small-business community. Close to 40 percent of firms that do not offer insurance have an average annual salary per FTE employee of less than or equal to $12,000; only 6 percent of these firms have an average annual salary of more than $24,000. Not surprisingly, the distribution of firms that offer health insurance is different. Although the majority (more than 70 percent) have an average annual Exhibit 3 Distribution Of Firms By Average Full-Time-Equivalent (FTE) Annual Salary Less than $12,000 $12,000- $15,000 $15,000- $18,000 $18,000- $21,000 $21,000- $24,000 More than $24,000 Firms that offer insurance Winners Losers 9% 8 18% 10 19% 13 20% 13 14% 16 20% 40 Firms that do not offer insurance

5 DATAWATCH 225 salary per FTE employee of less than $24,000 and are therefore eligible for the subsidy, fewer than 10 percent are in the bottom wage category. Overall, we calculate that 45 to 72 percent of those firms that currently offer health insurance will be "winners;" that is, their maximum liability will be less than their current payments for health insurance (Exhibit 4). In Pittsburgh, which has the highest percentage of winners and whose firms would experience relatively large gains, almost 9,000 businesses with fewer than twenty-five workers face a reduction in their liability for health insurance under this subsidized plan. Again, adding firms with up to seventy-five FTEs, as is proposed in the Clinton plan, would increase the number of winners. Given that firms with twenty-five to seventy-five FTEs are more likely to offer insurance, we anticipate that a higher percentage would see a reduction in liability under this plan. The average size of the "win" ranges from $623 to $2,082 per FTE employee per year (Exhibit 5). These numbers represent the minimum win possible for each firm. In some cases, the actual liability may be lower because of workers' characteristics and the type of coverage offered, and the size of the win could be higher. 7 Our findings suggest that winners are more likely to be companies that insure most of their workers, that already pay at least 80 percent of the premium for individual coverage (three-fourths of these firms pay 100 percent) and at least part of dependent coverage, and that offer a relatively rich set of benefits. Additionally, because of current underwriting practices, firms engaged in actuarially high-risk businesses are likely to be winners because of premiums that are high relative to the community-rated premiums estimated in the Clinton plan. As an illustration, one of the winners in our sample is a logging company in Portland with fourteen employees who each earn, on average, slightly more than $30,000 per year. The company pays nearly $96,000 per year for its health insurance plan, which has no copayments for inpatient hospital Exhibit 4 Percentage Of Firms Offering Insurance That Are Winners, And Percentage Of Workers Covered, By Win-Loss Status, 1993 City Cleveland Denver Flint Percent winners 65% Average percentage Winners 70% of employees covered Losers 44% Pittsburgh Portland Tampa Tucson

6 226 HEALTH AFFAIRS Spring (II) 1994 Exhibit 5 Average Size Of Win and Loss Per Full-Time Equivalent (FTE) Employee Of Firms That Offer Insurance, By Average Annual FTE Salary Category, 1993 City Cleveland Denver Flint Winners Less than $15,000 $2,032 1,575 1,701 $15,000- $18,000 $1,439 1,365 1,619 Losers $18,000-- $21,000 $1, ,418 More than $21,000 $1,528 1,441 1,776 $21,000 or less $ More than $21,000 $1, ,153 Pittsburgh Portland Tampa Tucson 1, ,392 1,099 1,819 2,082 1, , ,069 1,391 1, , , Note: The number of observations in several of the original salary categories was too small to report accurately. Therefore, some salary categories have been combined. care. The company pays 100 percent of the premium for individual coverage and part for dependent coverage. The company now pays 37 percent of total payroll in premium payments. Under the Clinton plan, the company's maximum total liability would be $20,375. Clearly, all firms that do not now offer health insurance will be "losers" under the Clinton mandate; that is, they will have to pay for health insurance. The size of their loss will vary, however, depending on the average annual salary of their workers and the total payroll. We estimate that the average maximum loss in these cases, maximum total liability will be less than $350 per FTE employee per year for those firms with an average annual salary of less than $12,000 per FTE employee (Exhibit 6). There was little variation in this estimate across the seven sites. Depending on the characteristics of its workers, a firm's actual loss may be lower because of the various "rules" regarding payment for part-time workers with multiple jobs, employed spouses, and so forth. The average loss increases to almost $600 per FTE employee for firms with an average annual salary of $12,000 to $15,000, approximately $1,000 per FTE employee for those with an average annual salary of $15,000 to $21,000, and $2,000 per FTE employee for the higher-wage firms. Of small businesses that do offer health insurance, 28 to 55 percent likely would pay more in total premium payments under President Clinton's plan. As was the case for firms that do not offer insurance, the average size of the maximum loss for the lower-wage firms, those whose average annual salary per FTE employee is less than $12,000, was less than $350 per FTE employee per year. In large part because of the decreasing subsidy, the size of the loss increases steadily as the average annual salary per FTE employee increases. For firms whose average annual salary per FTE is less than or

7 DATAWATCH 227 Exhibit 6 Average Size Of Liability Per Full-Time Equivalent (FTE) Employee Of Firms That Do Not Now Offer Insurance, By Average Annual FTE Salary Category, 1993 City Cleveland Denver Flint Less than $12,000 $ $12,000- $15,000 $15,000- $21,000 $ 995 1,038 1,060 More than $21,000 $ $1,895 1,832 2,861 Pittsburgh Portland Tampa Tucson , ,023 2,049 1,920 1,990 1,985 Note: The number of observations in several of the original salary categories was too small to report accurately. Therefore, some salary categories have been combined. equal to $21,000, the average loss ranges from approximately $400 to $500 per FTE; for those with an average annual salary per FTE greater than $21,000, the loss ranges from close to $800 to more than $1,200 per FTE (Exhibit 5). The variation in the size of the loss across different sites reflects different compositions of firms by wage category as well as different concentrations of firm characteristics that determine whether or not the firm would experience a loss. There are several reasons why a firm that now offers health insurance would face an increase in premium payments. One of the main reasons is the increase in the percentage of workers participating. In several of our sites workers in these firms were half as likely to have employment-based insurance as workers in firms that would be winners under the plan. Even with a payment cap of 3.5 percent of payroll, approximately one out of five firms that already offer insurance, with an average annual salary of less than $12,000 per FTE employee, would experience an increase in liability. On average, these firms have fewer than 10 percent of employees who work more than seventeen hours a week enrolled in their plans. Another reason for the increase is the 80 percent employer share proposed, which represents a substantial increase for many of these firms. This is particularly true in Tucson, where almost 60 percent of these firms now pay less than 80 percent of their workers' premiums. In addition, firms that will experience an increase are less likely to be paying any dependent coverage now. Finally, the payroll cap set by the plan may represent an increase in premiums, perhaps because of an increase in the number of employees with dependent coverage, or perhaps because of a richer benefit package. Labor market. Many critics of the Clinton plan are concerned that the increase in labor costs associated with mandatory health insurance will

8 228 HEALTH AFFAIRS Spring (II) 1994 result in increased unemployment. While there is some variation across sites, approximately 60 percent of the employees in our sample work in firms that would be losers under this plan, which translates into more than 400,000 workers in these seven sites. On average, these workers are evenly split between firms that already offer insurance but would face an increased liability and firms that do not now offer insurance. While $350 per FTE employee should neither pose a serious burden nor result in a significant increase in unemployment, some small businesses face considerably larger losses. Not surprisingly, the size of the loss increases as the average annual salary per FTE employee increases. On average, higherwage firms that do not now offer insurance would experience a loss closer to $2,000 per FTE worker; the loss faced by higher-wage firms that do offer insurance is close to $1,000. Wages. Although historically wages have been "sticky downward" that is, slow to fall in response to market forces we would expect employers to transfer this increase in liability for health insurance onto the employees in the form of lower wages where possible as soon as possible. 8 Because of the notch effect inherent in any graduated subsidy system such as this, some firms that negotiate lower wages with some or all of their employees will not only maintain the same total compensation package as before the mandate but will also experience a decrease in total liability because of both a lower total payroll and a lower premium cap. Response of small businesses. This survey was conducted before the release of the Clinton administration's plan, and therefore we did not ask the firms how they would respond to the specific mandate proposed. We did ask them how they would respond to a play-or-pay health insurance mandate, wherein employers pay for their workers' coverage or face a tax to do so. Consistently across all seven sites, approximately one-third of those that do not now offer health insurance said that they would decrease their number of workers; a third said that they would decrease wages or other benefits; and more than half said that they would increase the price of their goods or services. 9 It is intriguing that one-third of the firms plan to increase prices but not decrease wages or the number of workers. Only under very restrictive circumstances could firms pass on the entire increase in labor costs to the consumer in the form of higher prices. The Impact Of Voluntary Efforts Small-business health insurance pools. Several proposals have suggested that establishing small-business health insurance pools would substantially lower the number of working uninsured. In theory, these pools would result in lower premiums: The large numbers of uninsured workers

9 DATAWATCH 229 pooled would reduce risk of adverse selection, decrease marketing and sales costs to insurers, and increase bargaining power. When asked whether having such a pool would influence their decision to offer health insurance, 62 to 83 percent of small businesses that have not offered health insurance in the past five years said yes. Two of our sites have such pools; these areas provide some insight into pools' influence on the market. The Council of Smaller Enterprises (COSE) in Cleveland is often held up as an example. COSE is one of four divisions within the Greater Cleveland Area Growth Association, the area's Chamber of Commerce. Only members of the Growth Association are eligible to belong to COSE. COSE now offers thirteen different health insurance plans to its members, through Blue Cross and Blue Shield of Ohio and Kaiser Permanente. By its own account, COSE engages in heavy underwriting. According to our survey, almost one-fourth of the small businesses in Cleveland are enrolled in a COSE plan; approximately 40 percent of the small businesses that offer insurance in Cleveland offer a COSE plan. While we were not able to isolate the effect of COSE on the small-business health insurance market, we did find that only a slightly larger percentage of small businesses in Cleveland offer health insurance than in Pittsburgh, a city of similar size and business composition (65 percent versus 59 percent) and that small businesses in Portland were equally likely to offer health insurance without the existence of a pool such as COSE. The small impact is not due to lack of information about COSE. Almost 85 percent of those firms that do not offer insurance claimed that they had heard of COSE. About one-fifth of those surveyed who had heard of COSE but who do not offer health insurance said that the poor health of one or more employees was a reason why they do not offer health insurance. Just as in all of our sites, however, the dominant reason given by these firms for not offering insurance was cost. Slightly more than 60 percent said that the existence of a pool that resulted in lower premiums would influence their decision to offer health insurance. Clearly, many of these firms did not think that the reduction in premiums achieved by COSE was enough. Tampa is the home of a voluntary small-business insurance pool called the Florida Health Access Corporation (FHAC) that offers a subsidized health insurance plan. The state subsidizes this plan by providing a subsidy for dependent coverage, administrative and marketing costs, and reinsurance. The resulting premium offered by a local health maintenance organization (HMO) was estimated to be 25 percent lower than the market premium for equivalent plans. 10 In contrast to COSE, which accepts member firms with insurance who want to switch to a lower-price plan as well as qualified firms without insurance, FHAC targets small firms that have not provided coverage for the previous six months.

10 230 HEALTH AFFAIRS Spring (II) 1994 Again, it is impossible to control for all determinants of small-business coverage, but with 54 percent of the small-business community offering health insurance, Tampa has the next-to-lowest rate of coverage in our sample. We estimate that fewer than 5 percent of the small businesses in Tampa are enrolled in the subsidized plan sponsored by this pool; approximately 7 percent of those with insurance chose this plan. These figures are substantially lower than those reported two years ago. 11 We do not know how much of this drop is due to reduction in enrollment and how much to reporting error. Almost 14 percent of those who said that they had heard of this program said that they were members. Even though we asked to speak to the person most knowledgeable about the firm's benefit plans, it is possible that some of those who said that they had not heard of the plan were in fact enrolled in it. It is not obvious from our survey results why this plan has not been more successful. While this plan does not have the same degree of name recognition as does COSE, close to 40 percent of employers that do not offer health insurance in their firms had heard of the plan. Even though firms in Tampa that do not offer insurance are actually more likely to report that they are interested in offering insurance than those in other sites, only one-third said that they were interested, and only one-fourth actually had someone at the firm shopping for insurance. As with all of our sites, more than threefourths reported that costs are the major barrier, even with the availability of this heavily subsidized plan. Another barrier to its success may be that the plan offered is an HMO. Small businesses may see an HMO as representing a limited choice of providers. Of six different policy options offered, the availability of a low-cost, limited-choice plan was the least popular among our firms. Only 40 percent of Tampa firms without health insurance said that this would influence them to offer coverage. Low-cost, reduced-benefit plans. Another strategy in many smallbusiness benefit markets is to offer a plan that lowers premiums by reducing the scope of the benefits. About half of our firms said that the availability of low-cost, reduced-benefit plans would influence their decision to offer health insurance. We were able to look at the market penetration rate of one such plan. U.S. Life Insurance Company has underwritten and administered a lowcost, reduced-benefit plan developed and marketed by the Denver Department of Health and Hospitals. This offering, called the Shared Cost Option Plan for Private Employers (SCOPE), met with what can only be called limited success. Although almost 30 percent of those without insurance had heard of this plan, after three years of marketing only 1 percent of small businesses are enrolled in the plan, and less than 2 percent of those with insurance choose the plan. Even though cost is the primary reason given for

11 DATAWATCH 231 not offering insurance, apparently achieving lower premiums through a reduction in benefits is not attractive to most small businesses. Firms in Denver that did not offer insurance coverage were more likely than those in the other sites to say that the fact that lower-cost plans usually offer lower benefits is an important reason why they do not offer insurance. Lower-cost, limited-choice plans. Another way to lower premiums is to reduce choice of provider. The Clinton plan's reliance on managed care plans represents to many a reduction in choice. This was the least popular option offered to our firms. The HMO market has made few inroads into the small-business market. We can gain limited insight into the willingness of small businesses to enroll in an HMO by looking at the penetration rates of HMOs in two of our sites: Tampa and Tucson. As discussed above, the HMO offered by the state-subsidized pool in Tampa has met with limited success. In Tucson approximately 4 percent of the small businesses offering insurance are enrolled in an HMO offered through the Arizona Health Care Group (HCG), a state-sponsored program. Only firms that have gone uncovered for a specified period of time are eligible; there is minimal administrative support provided by the state and no direct premium subsidies. In addition to these limitations, another reason for the small enrollment in this case may be exposure. Only one-fifth of the firms had heard of the plan. A final limiting factor may have been that the HMOs offered were also participants in Arizona's Health Care Cost Containment System (AHCCCS), which serves the Medicaid population. Here again, although cost is the primary reason cited, small businesses do not want to give up choice or perceived quality to achieve those lower costs. In fact, two-thirds to three-fourths of the small businesses surveyed in all seven sites said that the only options that would influence them to offer insurance involved reducing the cost to employers or employees through direct government subsidies. Study Implications Our few examples indicate that voluntary efforts are not likely to yield large increases in the numbers of small-business employees with employment-based health insurance. Even with lower-cost options in the market, a third or more of small businesses in our survey do not offer insurance to their employees, more than half of employees working more than seventeen hours a week were without employment-based coverage, and more than one-fifth were without any coverage at all. Some of this may reflect insurers' underwriting practices, which disproportionately affect small businesses and their employees. Such exclusions were given as important reasons for not offering health insurance by approximately one-third of the businesses

12 232 HEALTH AFFAIRS Spring (II) 1994 Exhibit 7 Small Firms' Interest In Making A Health Plan Available To Employees, 1993 City Interested 22% Depends 7% Not interested 71% Cleveland Denver Flint Pittsburgh Portland Tampa Tucson that had not offered health insurance in the past five years. Eighty percent of all businesses supported a law that required insurance companies to accept all small businesses that seek health insurance. The removal of underwriting will not lead to universal health insurance coverage in the small-business market, however. In addition to the affordability issue, some small-business owners just do not want to offer health insurance to their employees. 12 Fewer than one-third of those not offering health insurance said that they were interested in making a health plan available to their workers (Exhibit 7). If the goal of a reformed health system is universal health insurance coverage, some form of mandate seems inevitable. We have presented first-cut estimates of the costs to small businesses under one mandate plan. As with most such plans, there would be winners and losers, at both the firm and the individual employee levels. Our results suggest that the health care reform discussion should center on the benefits of universal coverage relative to the costs of different kinds of mandates, not on whether a mandate is necessary to achieve universal coverage. Support for this research came from The Robert Wood Johnson Foundation. NOTES 1. See, for example, C.G. McLaughlin, "The Dilemma of Affordability Health Insurance for Small Businesses," in American Health Policy: Critical Issues for Reform, ed. R.B. Helms (Washington: American Enterprise Institute, 1993). 2. See W.K. Zellers, C.G. McLaughlin, and K.D. Frick, "Small-Business Health Insurance: Only the Healthy Need Apply," Health Affairs (Spring 1992): See J.K. Iglehart, "Health Care Reform: The States," The New England Journal of Medicine 330, no. 1 (January 1994): 75-79; and "Comparison of Key Congressional Health Care Reform Bills 1993," The Nation's Health (January 1994): Cynthia Sullivan and colleagues report that only 10 percent of all part-time workers in small businesses are eligible for their firm's plan. C.B. Sullivan et al., "Employer-

13 DATAWATCH 233 Sponsored Health Insurance in 1991," Health Affairs (Winter 1992): While in theory the cost of health insurance coverage is borne by the employee through reduced wages, not by the employer, in practice most firms do not negotiate individual compensation packages for each employee in which wages are altered to reflect individual versus family health insurance coverage. 6. Several definitional and data issues limit our ability to provide estimates that have a one-to-one correspondence to the Clinton proposal. The proposals calculation of a business's FTE employees includes all employees working ten or more hours per week, with thirty hours a week equal to one FTE employee. Only businesses with fewer than twenty-five employees working seventeen or more hours a week were eligible for our study, and these were the employees for whom we collected information on wages and hours. Therefore, our FTE counts are slightly lower than those that include employees working ten to seventeen hours per week, and our sample underestimates the number of firms with twenty-five or fewer FTE employees in these cities. In addition, it is not clear from the proposal how the earnings of the owner(s) are handled in the calculation of annual average wages. We experienced considerable reporting error for this variable in an earlier survey of small businesses. Many owners told us, "We don't get paid anything. We just take what we need." Others refused to give us even ranges. Given these problems, we elected not to include owner wages. Depending on how the Clinton plan would handle owner income, this inclusion could increase or decrease the average annual wage per FTE employee. 7. We calculated the maximum loss and the minimum win for each firm by doing the following. We calculated the annual earnings of each employee and then aggregated across employees to get the total annual employee wages of a firm. We divided this by the number of FTEs, limited to those employees working more than seventeen hours a week as noted above, to get the average annual wages per FTE. We then classified firms according to the six groups established in the Clinton proposal, assigned the appropriate premium cap to each firm, and calculated their maximum liability. For firms that do not now offer health insurance, this figure represents their maximum loss. For firms offering insurance, we subtracted their maximum liability from their current annual premium payments. A positive value represents the minimum win, a negative value the maximum loss. Again, the loss could be smaller. There were a few firms in fact whose maximum losses were small enough (in one case, $5 per FTE) that their specific situation could result in a net win. This reversal is not likely for most of our firms, however, because losses were fairly large. 8. For example, it will not be possible for employers to make this substitution for workers at or near the minimum wage. 9. The percentages do not sum to 100 because respondents were allowed to answer positively to more than one action. More than one-third said that they would only increase prices; 10 percent would only decrease wages and benefits; and 10 percent would only decrease the number of employees. 10. The program in Tampa was one of several demonstration projects funded by The Robert Wood Johnson Foundation; the Denver and Tucson sites also were demonstration sites. See W.D. Helms, A.K. Gauthier, and D.M. Campion, "Mending the Flaws in the Small-Group Market," Health Affairs (Summer 1992): 7-27; and C.G. McLaughlin and W.K. Zellers, "Shortcomings of Voluntarism in the Small-Group Market," Health Affairs (Summer 1992): Earlier reports estimated that more than 15 percent of those with insurance were enrolled in this plan. See McLaughlin and Zellers, "Shortcomings Of Voluntarism." 12. See K. Thorpe et al., "Reducing the Number of Uninsured by Subsidizing Employment- Based Health Insurance," Journal of the American Medical Association (19 February 1992):