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Lessons from a Small Business Health Insurance Demonstration

The recently concluded Small Business Health Insurance (SBHI) demonstration was designed to improve New York City small employers' access to affordable health cover-age. According to this study, the program, while offering premiums that were about half of market rates, was unable to attract substantial participation. Poor implementation and marketing, plus flaws in product design, were found to be largely responsible for the program's failure to catch on among the city's small businesses. At the same time, those workers who did enroll reported that the health coverage SBHI provided served their needs well.

The study, Lessons from a Small Business Health Insurance Demonstration Project, was conducted for The Commonwealth Fund by Stephen Rosenberg, M.D., an emeritus clinical professor of health policy and management at Columbia University.

Launched by the Mayor's Office in 1997, the SBHI demonstration brought together a commercial insurer, Group Health Incorporated, and the Health and Hospitals Corporation (HHC), New York's public hospital system, to offer a comprehensive, low-cost insurance option for firms with two to 50 workers. The program, implemented in northern Brooklyn and the South Bronx–northern Manhattan area, offered monthly premiums of just under $100 for individuals and $235 for full family coverage. The low premiums and generous benefits were made possible by restricting the provider network to HHC inpatient and ambulatory facilities in the demonstration areas, which had agreed to offer steep discounts. Despite substantial initial interest, however, only 53 small busi- nesses had enrolled in the program after two years. Dr. Rosenberg's evaluation found that while the modest marketing campaign for SBHI generated many requests for information, the program often failed to follow up on leads. SBHI's geographically limited provider network, furthermore, was not meeting the needs of business owners, who often lived far from their businesses.

Despite low participation, 80 percent of enrolled firms were small businesses without any health plan—the desired target group. Employees indicated that SBHI coverage was a factor that led them to their current employer. They were pleased with SBHI's low costs, prescription drug program, and support services.

Dr. Rosenberg recommends that future efforts to make health coverage more affordable and available to small business employees adopt a concentrated marketing approach, user-friendly enrollment, and a broader choice of plans and provider networks.

Facts and Figures

  • In 1999, 1.4 million workers in New York State lacked health insurance.
  • Only 41 percent of workers in New York State employed by businesses with fewer than 25 employees were offered health coverage.
  • Sixty-four percent of individuals who were enrolled in SBHI had neither private nor public third-party health coverage previously.

Publication Details



Lessons from a Small Business Health Insurance Demonstration, Stephen N. Rosenberg, February 2002