Through the Roof
You have two options: Find a way around skyrocketing health-care costs or start keeping more Kleenex around the office.
URL:
http://entrepreneur.com/management/insurance/article54612.html
In the mid-1990s, Ron Hatch, 56, owner of Hatch Furniture in
Yankton, South Dakota, thought his health insurance costs were
horrendously high. "Our premiums were rising at over 10
percent each year and were becoming one of our largest
expenses," he says.
Then Hatch learned the true definition of horrendous. In the
past three years, a confluence of factors has forced the furniture
company's health insurance costs into the stratosphere.
"Last year our premiums jumped by about 50 percent, since some
insurance companies pulled out of South Dakota and more health-care
rules were written into law," he says. Co-pays were raised for
the furniture business's 28 employees. Unable to afford the
higher fees, 19 workers no longer have employer-funded insurance, a
move that could put their health in serious peril. The strategy
backfired in terms of the budget as well: As the pool of insured
individuals decreased, each person's premium rose, wiping out
the savings Hatch was aiming for.
Hatch is hardly alone. Nationwide, small businesses are about to
be swamped by a perfect storm of changes that should prompt
drastically higher health-care costs for 2002, 2003 and beyond. A
recent poll by consulting firm Hewitt Associates found that 99
percent of employers are "significantly or critically"
concerned about rising health-care costs, which are turning into a
crisis for many small companies. In fact, warns Steve Sobiek,
executive director of the Independent Business Association of
Wisconsin, unless small businesses quickly address this brewing
hurricane, they could soon wind up paying more in health benefits
than in salaries.
Though it hardly seemed it at the time, the mid-1990s actually
were a period of relatively stable health insurance premiums,
compared to the present day. In the early days of managed care,
HMOs did keep costs down, premiums rose at a relatively consistent
rate, and more insurers covered small businesses, says Greg
Scandlen, senior fellow in health policy at the National Center for
Policy Analysis, a think tank. Consequently, in the mid-1990s, more
small businesses could afford to provide HMO or PPO coverage.
But in the past several years, the small-business health
insurance market has changed radically, forcing entrepreneurs to
make hard choices that could cost them crucial employees. According
to Michael Taylor, senior health policy analyst at consulting group
Towers Perrin in Valhalla, New York, doctors banding together into
larger medical groups in the late 1990s were able to demand higher
fees from the managed-care organizations. Meanwhile, insurers were
starting to cover more expensive new health-care technologies, and
loosened restrictions on pharmaceutical advertising allowed major
drug companies to market prescription pharmaceuticals directly to
consumers, a move that has pushed drug usage to unforeseen
levels.
"The problem isn't so much the price [increases], but
that we're unable to predict how much premiums are going to
rise each year, so we can't develop a long-term plan,"
says Stacy Gore, president of Fullerton, California-based GM
Packaging. To keep her company's health-care costs reasonable,
Gore, 38, has doubled her employees' contributions over the
past three years, while keeping the employer contribution
fixed.
| $227 |
| The average monthly per-employee cost of providing
health insurance. SOURCE:
"Kaiser/HRET Employer Health Benefits Survey,
2001" |
And many of the dynamics contributing to higher health costs are
only going to get worse this year and next; combined with several
key legislative, economic and social changes, they will create a
storm that may hit small businesses with the steepest premium
increases in history in 2003.
Perhaps most important, states and the federal government are
introducing new mandates that various treatments be covered.
Federal patients' rights legislation currently being debated
also is expected to boost premiums. Meanwhile, insurance companies
will increase commercial premiums to make up for reduced Medicare
and Medicaid subsidies over the next five years.
| Update |
| Capitol
Hill has its hands full debating Association Health Plans, touted
as one possible solution to the health-care crisis. Are AHPs a
godsend, or a recipe for disaster? Read the latest news here. |
Small businesses were never able to handle premium increases as
easily as large corporations, which often are self-insured and big
enough to bargain for discounts. But in the past, entrepreneurs,
virtually none of whom are self-insured, at least had a choice of
agents and providers, who would offer minimal discounts to win
clients.
No longer. "The small-group health insurance market is a
disaster," says Taylor. "Large insurers are realizing
that the small-business market is less profitable, and they're
pulling out, leaving just a few insurers to handle all small
businesses"--and possibly to jack up rates. Indeed, Gore notes
it's difficult to find affordable health-care plans because so
many carriers have pulled out of the California market. In Florida,
the number of carriers covering small businesses has fallen from
100 to 26 since 1997. In Colorado this past March, Aetna abandoned
the small-group market, leaving roughly 100,000 small businesses
and self-employed workers scrambling to find new coverage.
Carolyn Fazio, chairwoman of Fazio International Ltd., a small
Boca Raton, Florida-based public relations firm, has also seen
firsthand how insurers fleeing the small-group market can cripple a
business. "The worst thing about small-business health
insurance is getting a legalese letter informing you that your
insurer is dropping small groups and advising you that you have 60
days to change," says Fazio, 55, whose company was dropped by
its insurer earlier this year. "I had to rush not only to get
a new health plan but also to find an insurer who is linked to my
doctors."
| Visit Our Insurance Center |
Find out what you need, where to get it,
and how to save money in the process at our Insurance
Center.
|
Small companies have scrambled frantically to hold down
premiums, often with little success. Fazio began using health-care
Web sites to compare benefit costs and has turned more to freelance
contractors, reducing the number of workers she has to cover. Other
entrepreneurs have restricted health benefits to employees who have
been on the job for a certain period of time.
Like Hatch and Gore, numerous employers have raised deductibles
and co-pays, or otherwise boosted employee contributions, to make
staff more conscious of the cost of health care. (Many
small-business owners have offered employees drug discount cards,
sold by private companies, to take some of the sting out of higher
deductibles.)
In some cases, entrepreneurs have stopped providing health
insurance, but such a move alienates some employees, especially as
the economy recovers and the labor market tightens. Indeed, a
Hewitt poll found that employees rank health care as the most
important benefit, and many workers are willing to switch companies
simply to get it.
Other entrepreneurs are using Web sites like Healthmarket.com to
customize their health plans or signing up for defined-contribution
plans (also known as medical savings accounts), which are gaining
popularity. Most defined-contribution plans combine a catastrophic
coverage policy with a personal spending account administered by
the employee. You place a lump sum of money--say, $1,500--into the
account, which the employee uses to pay for routine medical care
and drugs.
If the employee exhausts the lump sum, he or she pays for
remaining medical expenses, up to a certain cap. Above that amount,
catastrophic coverage begins and pays for 100 percent of costs.
"Since the employee knows that at a certain point health care
will come out of his pocket, he will exhibit the kind of
cost-consciousness that doesn't exist now," says
Scandlen.
| 60% |
| of small
businesses with three to 24 employees offer health insurance. SOURCE: The Kaiser Family Foundation:
"National Survey of Small Businesses" |
Do defined-contribution plans work? Faced with spiraling costs
in December 2001, Ed Treick, president of S-F Analytical
Laboratories, an environmental analysis firm in Milwaukee, let his
employees vote on their benefits. They chose a defined plan from
Golden Rule Insurance, one of the leading defined providers. (Other
market leaders are Definity Health and Vivius.) Since then, he
says, "I've seen some employees researching generic drugs
on the Internet, sharing information about buying drugs in Canada,
and thinking about other cost-saving ideas." For 2002, Treick,
62, expects his premiums to rise by less than half their 2001
increase.
Others are not so convinced. Gail Shearer, director of health
policy analysis at Consumers Union, an independent research
organization, says because defined-contribution plans appeal more
to healthy people, who can save some of the lump sum, they may hurt
less healthy workers and their employers. In fact, after S-F went
to a defined plan, one of Treick's employees quit over concerns
that his chronic allergies would incur large out-of-pocket costs.
What's more, Taylor argues, defined-contribution plans force
employees to make complicated health-care decisions. "Many
workers don't have the time or skills to do all this
research," he says. "They just want a few simple choices
of plans."
| Next Step |
For more information on health insurance,
check out the following: - www.ehealthinsurance.com: A detailed
site that allows you to view and comparison shop most major health
plans available in your state.
- www.healthmarket.com: Provides an
introduction to innovative ideas like medical savings
accounts.
- www.healthweb.org: A comprehensive site
with information on major diseases, workplace injuries and
preventive health measures.
|
Despite the grim situation, entrepreneurs are not out of
ammunition in their battle against rising health-care costs. Small
businesses can focus more on preventive care, says Patricia Halo,
author of Managing Health Benefits in Small and Midsized
Organizations. (AMACOM). "As an employer, you have to
create a healthy environment if you hope to reduce chronic and
catastrophic illnesses, which eat up most health-care
dollars," Halo says. Halo recommends offering healthy
breakfasts rather than coffee and doughnuts, holding educational
sessions that teach employees about fitness and banning smoking in
the workplace. "Employers have to be clear that the privilege
of health insurance comes with the responsibility of taking care of
your health," she says.
Halo also suggests that small businesses seek out state-funded
health-care subsidies and use "report cards" put out by
organizations like the National Committee for Quality Assurance,
which analyze and compare health plans. "Most small businesses
don't realize that many states pay for some health care for
companies with few employees, or that some of their employees may
be eligible for government programs like Child Health Plus [a New
York children's health insurance program]," Halo says.
| 71% |
| of small
businesses that offer health insurance provide employees with just
one health plan option. SOURCE: The Kaiser Family Foundation,
"National Survey of Small Businesses" |
Ultimately, many business owners believe the best way to keep
health-care costs stable is to join association plans, in which
small-business owners band together to give themselves more power
to negotiate with insurers. Two years ago, Visual Edge Imaging
Studios, a three-person imaging company in Dayton, Ohio, joined an
association plan offered through the Greater Cleveland Growth
Association. "The association plan has been by far the best
option," says Visual Edge co-owner Randy Sowash, 38.
"Under the association plan, our premiums rose by only $8 last
year."
As in Ohio, trade associations already organize association
plans in many other states, and in the next two years Congress may
allow national trade groups to sell health insurance to their
members. Halo estimates that a small business could reduce
health-care costs by up to 25 percent by joining an association.
She says: "When you're facing the craziness that is
small-group insurance today, 25 percent could mean an enormous
amount."
| Online Exclusive: Under the Knife |
Cut
your health-care costs with these penny-pinching tips.- Hit the
books: Research customized health plans that tailor drug
benefits to small companies' needs, defined-benefit plans, or
insurance agents who only serve the small-group market.
- Put your staff
on a diet: Offer fruit, bottled water and other healthy
items to your work force; allow your employees time to eat lunch
away from their desks so they can manage their stress levels and
enjoy a healthy meal.
- Pass the
buck: To encourage workers' consciousness of health
costs, raise deductibles and co-pays or choose a health plan that
has much lower co-pays for generic drugs.
- Join the
crowd: Research association plans offered in your state.
Because of their size, many association plans are exempt from state
mandates that force insurance providers to pay out more in
coverage.
- Call the
government: Phone your state health insurance office to
see whether your business qualifies for health-care subsidies to
small employers or minority-run businesses.
|
Joshua Kurlantzick covers trade and international economics
for U.S. News and World Report
Contact Sources
- Independent Business Association of Wisconsin
1400 E. Washington Ave., #282, Madison, WI 53703, www.ibaw.com
- National Center for Policy Analysis
12655 N. Central Expwy., #720, Dallas, TX 75243-1739, www.ncpa.org
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