Small Employers Struggle to Offer Health Insurance

Unlike most small employers, Boeggeman, George & Corde, a New York law firm with offices in White Plains and Albany, pays full health insurance coverage for each of its 23 employees and their families. At least for now.

Premiums are rising so quickly that partner Richard Corde has been grappling for six years with whether to make workers pay part of the cost. In that time, the health-care share of the firm's total compensation budget has doubled, to 10%. When Corde went to his insurer, Health Net (HNT), to arrange a November renewal for the firm's' policy, he was given a 22% higher rate, an increase Corde says is typical. He has switched insurers at least three times to avoid such hikes. To keep the policy affordable this year, he agreed to higher deductibles for doctors' visits and prescriptions. Even with the concessions, the firm will pay about 9% more this year—close to $200,000. "I don't know how many years of those kind of increases I can absorb," Corde says.

Washington lawmakers are trying to write legislation to contain health-care costs and expand coverage. But even if reform passes this year, any effect on the price of care won't manifest until 2011 at the earliest, according to an analysis by PricewaterhouseCoopers. Many small businesses, some closing the worst year (or two) in their histories, face hard questions about how—and how much—to pay to keep their employees and their families healthy.

Workers see ever-higher deductiblesIn the past decade, the average health insurance premium for a single worker at a company with fewer than 50 employees went from $2,475 to $4,501, an 82% increase, according to data from the U.S. Department of Health and Human Services. Family premiums increased by 93% in that period, to $11,679. As costs rise, companies ask workers to contribute a greater portion of premiums: Employees at small companies that provide health insurance in 2008 paid more than twice what they did in 1999. Even adjusted for inflation, the increase is 63% for single coverage and 49% for family plans. At the same time, the percentage of small businesses offering coverage dropped from 47% to 43%, compared with 96% for companies with 50 or more employees.

Overall medical costs will grow by about 9% in 2010, according to the PricewaterhouseCoopers analysis. Many companies, especially those facing leaner demand, are buying less generous policies to keep prices in check and shift part of the cost increase to workers. "A company that maybe has a $1,500 deductible today might renew and get a $2,500 deductible," says Carey Wolf, sales manager for the small group health unit at online insurance broker eHealth (EHTH). "Businesses are realizing that maybe part of that has to be absorbed by the user by having a little bit higher deductible or a little bit higher co-pay."

Small businesses that want to continue to offer health benefits face limited options to control the cost. EHealth has seen many more companies shopping for new plans, Wolf says, which sometimes keeps premiums down, at least for a year, as competing insurers try to acquire new customers with attractive rates. But the money that supports ever-growing health-care costs must come from somewhere—higher premiums, deductibles, or co-payments.

"appalled by this entire process"About three years ago, Hoglund Transportation, a family-owned school bus operator in Monticello, Minn., switched from paying half the premium for comprehensive coverage to paying the full cost of a high-deductible plan offered by the same insurer, Medica. The cost to the company was about the same, leaving Hoglund paying over $44,000 annually for its six covered employees. But Medica quoted a 26% increase at the end of September, which would raise the premium to $55,800, according to Kari Kounkel, who runs the business her grandfather started in 1947.

Kounkel says she will discuss three options with her employees: Keep the current policy, but ask them to start paying part of the premium; increase the deductible from $5,000 to $9,000; or agree to a plan where employees would pay 20% of their medical costs even beyond the $5,000 deductible—which could cost someone with a catastrophic illness many thousands of additional dollars. She doesn't like any of the choices. "I've just been appalled by this entire process for the past two years," she says.

She hopes to blunt future increases by finding a creative solution, such as giving her workers incentives to improve their health—discounted gym memberships, for example. But like most small businesses, health insurance takes up an increasing share of Hoglund's compensation spending. Few see better alternatives ahead. Kounkel doubts that reform will really curb premium hikes and she fears that her company could be forced to provide even costlier coverage than its current high-deductible plan.

For his part, attorney Corde says his firm will pay the higher premiums this year without asking workers to contribute. "I don't want my employees in this economic environment to try to save money and not carry health insurance," he says. But he's not sure how long the firm can keep it up. "I don't know what next year's increase in premiums is going to be, or the year after that, or the year after that."

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