Wherefore Art Thou? Small business, healthcare coverage, and group association

Small business/group research in health insurance is academically compelling given the dearth of literature, and insightful from both a theoretical and practical standpoint. The small group is a statutorily defined, government-regulated, and vital insurance market. We investigate why (and how) small firms manage to offer employee healthcare coverage despite the substantial costs and their employer mandate exemption. A corollary question is how they might band together and collaborate to further contain rising premium costs, gain leverage with insurers, and overcome mandatory protections and standards for small group plans. We find strategic differences between plans offered by small and large groups through which small groups might mitigate costs and trade-offs arising from employer propensities, plan design and benefits, financing, risk management, and associational options. Minimizing transaction costs of search and information, bargaining and decision-making, and monitoring and compliance, and market signaling within and between small firms to contain information asymmetries, are also key to achieving cost-efficiency in employer healthcare coverage.