Small business employees are much less likely to have access to employer-sponsored health coverage than the employees of larger firms.  According to the Kaiser Family Foundation:

• Of the 45.7 million U. S. residents without health insurance, 20 million are employees - or in the families of employees - of businesses with 50 or fewer employees.
• Among companies with more than 50 employees, 95.6 percent of workers have health insurance, compared to 42.6 percent of individuals working for small businesses. 

Undoubtedly there are many reasons why small businesses are less apt to offer health coverage to their workers than larger firms.  However, one likely reason is that small businesses encounter a host of costly state regulations and mandated-benefit laws not faced by larger employers that self-insure.

Small Businesses Face Higher Costs.  Since 1999, the cost of employer-provided health insurance has risen 120 percent, or four times faster than prices generally, according to the 2008 Kaiser Family Foundation Employee Health Benefits Survey.  The Commonwealth Fund estimates that small businesses face higher than average costs:

• Insurance premiums for small businesses are 18 percent greater than those paid by large companies.
• Administrative costs account for up to 25 percent of the cost of premiums for some small business health plans, compared to 10 percent for large firms.

Continuing medical cost inflation only exacerbates the problems faced by small businesses.  Health care costs are expected to rise 10 percent in 2009, according to the consulting firm Pricewaterhouse Coopers. 
Annual Family Policy Premiums

Why Costs Are Higher for Small Businesses.  Costs are higher for small-group insurance because states require small-group health policies to cover certain conditions, treatments and providers. Large employers often self-insure. Their plans are governed by federal law rather than state regulations, and federal government mandates fewer benefits.  Small group premiums vary widely by state, and the highest premiums are in the most heavily regulated states.

According to the Council on Affordable Health Insurance, there are more than 1,961 state-mandated benefits that insurance companies are required to offer in their health plans, adding to the cost of small group health insurance.

• Mental health parity is one of the most expensive and pervasive mandates - 47 states require insurers to cover mental health conditions, adding 3 percent to 5 percent to premiums, according to CAHI estimates.
• Forty-six states require coverage for chiropractors, 11 states mandate acupuncturists and four require coverage for massage therapy.
• Four states require coverage of naturopaths, who utilize food and herbal remedies to complement (and sometimes in place of) surgery or drugs.

In Massachusetts, the Division of Health Care Finance and Policy reported that 13 cents of every dollar spent on health care goes to cover mandated benefits.  CAHI estimates that these mandates add 20 to 50 percent more to the cost of insurance, depending on the state. ...