Fighting Off Health-Care Headaches

Rising premiums have made it difficult for small businesses to provide health insurance. A good plan: Consider many options

The ever-rising cost of health care is a constant source of concern among Americans. One area where it has hit particularly hard, however, is the small-business sector. While some 45 million Americans are uninsured, the largest number of them -- about 51% -- work for small companies with fewer than 100 employees.

According to the Kaiser Family Foundation, health insurance premiums have risen by some 60% since 2001. The foundation also reports that while nearly all large firms offer health insurance, only 63% of small firms provide coverage to their employees. This coverage gap is expected to continue as spending on health care is estimated to nearly double by 2013.


  These statistics are especially grim for small businesses and the self-employed, who are unable to absorb the rising costs, making it increasingly difficult for them to afford basic coverage for themselves, their employees, and their families. For a number of years, entrepreneurs have identified the cost of health insurance as their primary concern. For small-business owners, it's a matter of critical urgency, as it directly impacts their ability to stay competitive and profitable.

This week, for the first time, the Senate Committee on Health Education Labor and Pensions passed the Health Insurance Marketplace Modernization and Affordability Act. The bill -- which had passed the House several times, but had been stalled at the Senate until now -- allows for the creation of Small Business Health Plans, or SBHPs. Such plans would give small-business owners the opportunity to take advantage of economies of scale by banding together across state lines, and through trade and professional organizations, to garner savings with insurance policies.

With the Senate Committee passage, it appears that small businesses are one step closer to affordable health care. In the wake of what could be an important breakthrough for entrepreneurs, BusinessWeek Online spoke to small-business owners who, despite the pressures and costs, remain committed to offering their employees health insurance. Highlighted here are the coping strategies of three small-business owners.


  Diane Butler, co-owner of 14-year-old Butler-Burgher, a Dallas-based real estate and consulting business, has always provided health benefits to her 50 employees. But like many small-business owners, she has found it increasingly difficult to continue to offer her employees health coverage as costs have escalated. Rather than abandon coverage altogether, Butler searched for a cheaper alternative to providing in-house coverage through UnitedHealthcare. "We needed a way to control our health-care costs," says Butler.

In 1998, Butler made the decision to go with an outsourcing company that would provide her employees with benefits. Butler-Burgher has an employee-leasing arrangement with Gevity, a Bradenton, Fla.-based human resources firm, which has a network of hundreds of thousands of staffers.

Here's how it works: Butler pays a fee to Gevity (in this case, $950 per employee per year), and Gevity technically becomes Bulter's employer. Under that arrangement, Gevity handles all of Butler's human resources, payroll, and legal issues. By taking advantage of the economies of scale, Butler's employees receive a menu of health and other benefits, such as 401(k) plans. "We went to a model that was able to provide Fortune 500 benefits at a reasonable cost," says Butler, who estimates that her company saves 20% to 25% on health coverage as a result of the arrangement.

Butler says the arrangement goes beyond just offering comprehensive coverage at a savings. Her company gets full-scale HR and legal support. "This [arrangement] also frees up my time and my business manager's time," she says. "They handle all of the HR functions, and our time can be leveraged to work on other things."


  For the past 10 years, Larry Gunnin, owner of Commonwealth Industries in Hopewell, Va., has struggled to provide a health-care plan for all 18 of his employees. Gunnin, who took over the 43-year-old industrial-services company in 1990, says that only about one-third of the companies in his business offer coverage. He maintains that, despite the financial hardship (costs have increased 25% in recent years), it's a priority for him.

"We place a premium on keeping people," he says. "I feel it's important for the people here." Over the years, Gunnin has reduced coverage, raised office fees, changed carriers and policies, and asked employees to contribute to cover the cost of premiums. "We're so small and the underwriting costs are so high that it is practically the same as a big company," he says.

According to Guinnan, the company spends well over $100,000 on insurance for its employees. "Look at our demographic," he says. "Our workers are not highly educated. These are labor and warehouse people, and this is a really big need for them."

One of Guinnan's solutions is to scrupulously monitor policies and their options, and switch frequently to take advantage of newer offerings. In the past ten years he has changed carriers three or four times, in an effort to offer the best coverage at the best prices. "Our objective is to have a program that employees can go to when they are sick, without feeling a major cost," he says. Currently, that means that increasingly Guinnan has had to pass on more of the cost of premiums onto his staff. As it stands, Commonwealth Industries pays 63% of the premiums, and its employees pick up the remaining 37%.

While it might be easier and certainly cheaper to drop health benefits, Guinnan says he can't imagine ever abandoning health coverage for his employees. "Twelve years ago we were literally fighting to make payroll every week," he says. "And we didn't give up [coverage] then. It would take a lot for us to give it up."


  Until three years ago, Pat Conroy, president of Micromain, an Austin (Tex.)-based software company, offered his employees a straight Blue Cross Preferred Provider Organization (PPO) plan. With skyrocketing costs, however, the company needed to take action in order to continue offering health care to its 43 employees. "As long as I can remember, [costs] continually increased," says Conroy. "Periodically, we switched plans to mitigate some of the expense. We probably switched plans four different times in the past 10 years."

So, in 2003, the company decided to offer its employees the option to join a Health Savings Account (HSA) or stay with their PPO. An alternative to traditional health insurance, an HSA allows consumers to pay for current health expenses and save for future medical expenses on a tax-free basis. Enrollees must first be covered by a high-deductible health plan, which tends to cost less than a traditional plan, and the difference can put into the HSA.

So far, the company says that its staff has split 60-40, with the bulk opting for the HSA. "There was a significant increase between the PPO and the HSA of 30% to 40%," says Conroy. Those employees that choose to stay in the PPO pay the difference, which last year came to about $120 a month, according to Conroy.

Conroy doesn't anticipate a time when he wouldn't offer a health option to his employees, he says: "We have to remain competitive in the marketplace for hiring employees. It would take something really significant for us to drop health insurance altogether and I don't see us doing that."

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