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As companies struggle with higher premiums, they begin to consider newer options.
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When Laura Lee Jones learned in May that the cost of health insurance for her 16-employee company was going up a whopping 19.6 percent, she was hardly surprised.

“Here we go again,” thought Jones, the owner, president and chief executive officer of LionShare Marketing Inc. in Lenexa.

The company expects to pay nearly $22,000 in premiums under the coverage that kicked in June 1, up from about $18,400 last year. The premium rate alone jumped 13 percent, and the rest of the increase was due to three more employees being added to the plan, for a total of nine.

Jones said she is unsure how much longer she can keep absorbing the rising costs, but she is determined to keep offering health coverage as long as she can.

For small-business owners, it’s an all-too-common dilemma that every year hits where it hurts — the bottom line.

The federal and state governments say they are aware of the pain.

Missouri Gov. Matt Blunt in July signed legislation to increase access to affordable health care for employees of small businesses.

In Kansas, the insurance department is looking at the possibility of grouping small-business employees who suffer from chronic, expensive illnesses in a special insurance pool.

And in Washington, there’s a proposal for small-business health plans designed to lower costs and expand coverage.

But as many companies in the coming weeks and months decide whether to renew their health insurance, relief of any kind can’t come soon enough.

Some, like LionShare, will manage to stick with conventional health plans, while others will explore newer options such as health savings accounts, association plans and outsourcing.

Counting costs

Rising health insurance costs bedevil businesses of all sizes. The Kaiser Family Foundation reported last year that the average premium for employer-sponsored health coverage rose 9.2 percent between spring 2004 and spring 2005. Even though that fell below the previous year’s increase of 11.2 percent, it still far outpaced the overall inflation rate of 3.5 percent. (The foundation is scheduled to release this year’s report later this month.)

But small businesses can get hit with much bigger increases. For one thing, small businesses bring less bargaining clout to the health insurance negotiating table.

And if just one employee incurs big health-care costs, next year’s premium can loom like the Incredible Hulk.

“My health insurance coverage as an expense is probably my third-highest operating expense,” said Bryan Folk, president of Red Streak Corp., a Kansas City supply chain management firm with four employees. “It certainly makes it difficult in my budgeting when I’m looking at something as an expense that could be 20 percent higher every year.”

SurePayroll, a Chicago-based payroll service provider for small businesses, reported in July that 11 percent of the small businesses currently offering health coverage may pull the plug next year.

“If you think that we’ve got health insurance issues now, imagine if 350,000 small businesses stopped offering health insurance in 2007,” SurePayroll president Michael Alter said.

As it stands now, only 59 percent of small businesses (in this example, companies of three to 199 workers) offered health insurance in 2005, down from 68 percent in 2000, according to the Kaiser foundation.

Among small businesses that have stopped offering coverage in recent years is Manny’s of Kansas City, a Mexican restaurant on Southwest Boulevard. Owners Manny and Vivian Lopez said the restaurant dropped health insurance a few years ago when it got socked with a 40 percent premium increase.

“If I was to be a steakhouse and charge $27 a steak, I could afford it,” said Manny Lopez. “We just don’t have the funds to do it.”

The effect of these trends extends far beyond the small-business workplace. If employees lose health coverage at work and can’t obtain it on their own, they may show up as charity cases in hospital emergency rooms. “Eventually, they have to be absorbed by the system someplace, and society picks up the cost for a lot of these people,” said Dale Finke, director of the Missouri Department of Insurance, Financial Institutions & Professional Registration.

On its Web site, the U.S. Chamber of Commerce says nearly 60 percent of the nation’s approximately 45 million-plus uninsured work for small firms.

“As health-care costs continue to rise, fewer employers and working families will be able to afford coverage, and the number of uninsured Americans will inevitably rise,” the group said.

Crucial, but a burden

Lopez said the health insurance system “doesn’t give small business a choice. There’s not enough competition.”

Some options for small business have emerged in recent years, and there could be more on the way.

For example, Blue Cross and Blue Shield of Kansas City offers health insurance coverage for small businesses through a program called ChamberChoice, which is endorsed by the Greater Kansas City Chamber of Commerce. To qualify, a business must employ more than one and fewer than 50 people. Chamber membership is not required.

“It pools together employees from area small businesses and spreads the insurance risk over a wide population, instead of just a small group,” said Blue Cross spokeswoman Susan M. Johnson. It also specifies a first-year renewal rate cap (of 11.5 percent) for new members, Johnson said.

Johnson said ChamberChoice covers the majority of the 9,000 small businesses insured through Blue Cross.

Last November, Blue Cross launched CommunityBlue, a ChamberChoice product designed to help small businesses provide coverage to the working poor.

The program is based on high deductibles and low premiums, and the average cost for an employee has been estimated at about 30 percent less than traditional health insurance.

To qualify for CommunityBlue, a business must have fewer than 100 employees, with 60 percent of them making an annual gross income of less than $30,000. Participating employees must work at least 30 hours a week, and the employer must subsidize at least 50 percent of the employee’s premium.

Orilla’s Way, a seven-employee assisted living complex in Grant City, near St. Joseph, signed up for CommunityBlue.

“I tried for seven years to find affordable health care for my employees, but it never worked out,” said Ramona Goff, owner of Orilla’s Way. “It was either too expensive or it didn’t cover anything.”

Goff said CommunityBlue “offering this good benefit package hopefully will allow us to attract the kind of employees we want to care for our residents.”

However, Blue Cross said CommunityBlue has not met growth expectations and currently covers only four groups.

“What we’re finding out about this market is that small businesses come onto the product, then leave it again, often to purchase more traditional insurance,” Johnson said. “We are currently investigating more effective ways for small businesses to insure their employees.”

Small group plans also are offered by insurers such as Coventry Health Care of Kansas, UnitedHealthcare and Humana.

Some options come under the rubric of what are known as consumer-driven health plans.

Most notably, health savings accounts offer a viable option for many small businesses, proponents say. Tax-free contributions to the accounts can be used to pay for things like doctor visits, hospital stays and medications. The accounts save employers and employees money on premiums, because they are combined with low-premium, high-deductible health plans.

Besides the advantage of low premiums, the accounts enable employees “to accumulate money for future health-care expenditures as they reach retirement age,” said Dennis Triplett, president of Kansas City-based UMB Healthcare Services, which manages more than $60 million in health savings account assets around the country.

Bill Tracy, chief executive officer of UnitedHealthcare’s Kansas City area operations, said it has revamped its small-business offerings and placed added emphasis on health savings accounts and health reimbursement accounts, another type of consumer-driven health plan.

“We’ve embedded in all those programs a full portfolio of wellness programs and revised our pricing to more accurately reflect what we believe are the true economics for consumer-directed plans,” Tracy said.

The numbers indicate that health savings accounts are growing in popularity. An estimated 1.2 million individuals held health savings accounts in July, up 40 percent since the beginning of the year.

Critics say health savings accounts are too complex for many employees and are geared toward those who are strong savers and relatively healthy.

Another possible solution is outsourcing employee benefit functions. Marcus Mossberger, business development manager for Axcet HR Solutions in Lenexa, said businesses can lower their health insurance costs by going this route. Axcet and similar companies typically charge a fee based on a percentage of the employer’s payroll.

“We take our 300 small-business clients, with more than 5,000 individual employees, and pool them into one big benefit plan,” Mossberger said. “This allows us to obtain significantly reduced premiums and offer a richer plan design than small-business owners can usually obtain on their own.”

Federal help slow

Many small-business owners look to Washington for help, but it’s been slow in coming. Capitol Hill politicians for several years have debated the merits of what are known as small-business health plans or association health plans.

Such plans would enable small businesses to obtain benefits through associations that pool coverage across state lines. State health insurance departments have opposed the plans, citing a lack of state regulation.

Enabling legislation for these plans has been passed several times in the U.S. House, but has failed to get through the Senate.

The latest proposal is the Health Insurance Marketplace Modernization and Affordability Act, introduced by Sen. Mike Enzi, a Wyoming Republican.

Enzi cited a report by Mercer Oliver Wyman Inc. that said his legislation would “not only stop the trend of annual increases in health insurance costs, it would actually reduce health insurance costs for small business by a net 12 percent, or about $1,000 per employee.”

Kansas Insurance Commissioner Sandy Praeger said Enzi’s proposal is better than earlier proposals “because it retains state regulation and it gives small businesses what they’ve been asking for.”

There’s a new option in Missouri, where a law passed this year expands eligibility for association health plans by lowering the required number of members in an association from 100 to 50. The law also waives a requirement that health insurance rates for similar small businesses fall within 20 percent of each other.

“It certainly is a step in the right direction,” said Finke. But “it’s not the answer to everything.”

Praeger said the Kansas Insurance Department is studying the feasibility of grouping the sicker employees of small businesses into a special insurance pool. Kansas already has such a pool for individuals.

“They would still be in their same group health plan,” Praeger said. “Their benefits would be identical to their co-workers. But their additional costs would be funded by higher premiums passed onto every small business in the state that offers health coverage.”

Amid all the alternatives and proposals, small-business owners have to figure out what they and their employees can afford.

At LionShare, Jones said she will search for more affordable options if she gets hit with another big premium increase, but the lack of a viable alternative could lead to painful cuts.

“Maybe people won’t get the raise they want. Maybe it will affect profit sharing at the end of the year. Maybe retirement benefits will go down. It has to come from somewhere.”

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Where to look

Finding affordable health insurance can be a tough job for small businesses. Here are some tips:

•Talk to several health insurers and brokers. Insist on face-to-face meetings where you can explain your needs and what you can afford. Don’t buy coverage unless you are confident that you fully understand the costs and benefits. Talk to your employees and get their feedback.

•Consider special programs tailored to small businesses.

•Evaluate the option of outsourcing your health insurance functions to a company that specializes in employee benefit administration. This might be especially beneficial to companies with 10 to 100 employees.

•Look into health savings accounts, which combine tax-free savings accounts with low-premium, high-deductible health plans. Before you choose this option, talk to your employees and make sure they understand what would be involved.

•Missouri businesses can check to see if they would benefit from recent legislation that loosens up the rules for association health plans. Information may be obtained by calling the consumer affairs department of the Missouri Department of Insurance, Financial Institutions & Professional Registration at (800) 726-7390.

Copyright (c) 2006. Kansas City Star.