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High price of health insurance has some companies looking at dropping coverage

For Marianne Reeves, doing the right thing is expensive.
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Reeves, a principal in the Las Vegas accounting firm of Beadle McBride Evans & Reeves, said her company spends about $4,300 a month covering 100 percent of the health-insurance premiums for its 15-person staff.

Keeping the coverage hasn't been easy. One insurer tried to pass along a 60 percent premium increase a few years ago to cover higher losses among other businesses. Reeves sought out a new provider and settled into annual premium jumps of about 10 percent.

Despite the increases, Reeves hangs on to the full coverage, both to preserve the productivity that healthy employees confer on a business and to let her workers know she cares about their welfare.

"(The cost is) way too much," Reeves said. "It's important we provide it for our employees, though, because I don't want somebody to have a major problem and not be covered. I can't imagine not providing it."

But other small companies across the country are increasingly considering dropping health insurance coverage, a new report reveals.

A national survey from SurePayroll, a payroll-services company based in Skokie, Ill., shows that 11 percent of small businesses that offer health benefits said they might drop coverage in 2007 depending on how much costs go up in 2006.

Michael Alter, president of SurePayroll, said a 10 percent rise in insurance costs "will be the straw that breaks the camel's back."

"(Ten percent) would be three times the rate of inflation, and it would not be the first year where we have seen that level of cost increase," Alter said.

David Dahan, chief executive officer of insurance agency Orgill/Singer, said he's expecting average local premium increases of 9 percent to 12 percent, though companies' specific plans could increase more or less than those figures based on such factors as the age and gender of their work force.

The SurePayroll report collected data from more than 16,000 companies with 100 or fewer employees.

The questionnaire found that 58 percent of small businesses provide their workers with health insurance. Of the companies that extend coverage, 56 percent pay for at least 80 percent of the overall cost of their employees' health care.

Based on the number of smaller operations already furnishing insurance, Alter estimated 350,000 small businesses could shed health coverage in 2007.

The potential trend would have widespread implications for the economy, Alter said.

Small companies have a tougher time than big companies affording health benefits because they're spreading risk among a shallower pool of workers. That difficulty in providing health perks is making it harder for small businesses to compete with their larger counterparts for workers, and that could lead to an increasingly marginalized small-business sector.

"Unless action is taken to address high health-care insurance costs, the small-business economy will not be able to play as big a role as it has in the past in fueling the nation's economic growth," Alter said.

The recruiting disadvantage for businesses lacking insurance is most evident among older workers with families, because they often have more health-care needs than younger, single workers, Alter said.

The possible end result: Small companies without health plans will have to rely on less-experienced employees. And age discrimination could creep into the workplace as employers "quietly" opt for young, single, healthy hires, Alter said.

Area businesses said they haven't seen indications that local small companies plan to ditch health-care coverage.

Deborah Smith, director of account management at managed-care insurer Sierra Health Services, said the company's small-group market for businesses with two to 49 workers adds members each year, though she declined to disclose the number of enrollees or the program's annual growth.

Dahan said he doesn't know of any small companies that anticipate dropping coverage. What he's seeing instead is a push to split costs more evenly between employers and employees. Companies are asking their workers to take on a greater share of their premiums, or changing plans to require higher copayments for services and prescription drugs.

"More employers are saying, 'I want to make sure my employees are connected to the cost of health care,'" Dahan said. "Companies can't afford to just give it away anymore. Maybe they'll increase (workers' share of the) premium $20 a month so they can show their employees that health care is costing more for all of us."

Reeves, of Beadle McBride Evans & Reeves, said she won't yet ask her workers to share the burden of health-care expenses. Her monthly premiums would have to double before she would consider modifying her firm's coverage plan, but she said she's not surprised so many companies in SurePayroll's survey said they can't maintain health benefits much longer.

"I could see how a lot of businesses would have to drop insurance," she said. "For many of them, their profit margin isn't good enough to keep it. We could end up there too, depending on how much it increases."

Vicki Muratore, president of Las Vegas Gourmet Imports, is also hoping to keep benefits in the face of higher coverage costs.

After half a decade in business, Muratore signed up her company's workers for health insurance just nine months ago, and is due in the next three months for a renegotiation of her contract. Las Vegas Gourmet Imports, a food wholesaler and distributor, absorbs slightly more than half of its 10 workers' premiums, leaving staff members to pay about $60 per paycheck for insurance.

Muratore is bracing for an increase in premiums, but she said her rates would have to triple before she would cut the cord on her company's plan.

"I'm adamant about keeping health insurance for my employees," said Muratore, who competes with hotel-casinos for chefs, administrative staff and warehouse workers. "It was a benefit I needed to bring on for certain employees I really wanted. You can find employees, but keeping them is another story. It's definitely become easier (with insurance). Some good people came on because of it."

Local business owners said brisk economic growth could help Las Vegas companies weather spiking insurance premiums.

Reeves, whose client base expands 10 percent a year thanks to a combination of population growth, constant changes to the tax code and new federal rules governing financial reporting, said even the newest businesses in the city could be "relatively profitable simply because there are so many people moving to the area."

At Las Vegas Gourmet Imports, the client roster grows 10 percent to 15 percent annually -- an expansion rate that Muratore hopes will allow her to take on 100 percent of her employees' premiums and add a 401(k) program by early 2007.

Alter agreed that Las Vegas businesses have a distinct advantage over companies in other communities.

"If business is booming, a small business can absorb supply-cost increases, including health-care costs," he said. "Las Vegas is fortunate in that the local economy is growing at a rate that may allow employers to offer health-care to employees. That's not the case for small businesses in other areas of the country."

Alter said businesses could take several steps to ease insurance woes.

First, look for coverage through trade groups.

Franchisors often provide health benefits to employees of franchisees, and professional organizations sometimes assemble insurance-buying coalitions.

The Las Vegas Chamber of Commerce, for example, offers a group-health benefits program for member businesses with two to 50 employees.

Sidney Hendrickson, vice president of membership and community development at the chamber, said about 2,500 businesses have joined the program, giving participants the buying clout and risk distribution of a major corporation.

Renewals are scheduled every two years, allowing members to lock in health-care costs beyond the 12-month standard most companies face.

For companies that can't access trade-group coverage, Alter suggested high-deductible health-savings accounts, which allow workers to set aside money tax-free for routine medical bills and require them to more selectively choose health-care services. He also recommended raising deductibles, shifting some premium costs to employees or skipping plans that cover prescription drugs.

"Given the option of not having insurance or having to pay a little more for it out of their own pocket, most employees will opt for health insurance at a slightly higher price," he said.

Alter said long-term solutions for enabling small businesses to buy health insurance include bigger tax credits for insurance and containing hospitals' and doctors' costs. He said Congress should also strike down regulations barring interstate purchasing of small-business health insurance.

"If you don't solve small-business health-care problems, you put a big portion of the overall economy in a precarious position," he said.

Copyright (c) 2006 Las Vegas Review-Journal.