Smaller companies caught in health-care squeeze

Associated Press

NEW YORK – While looking for ways to cut costs, many small business owners find themselves caught in one of the most sensitive issues between employer and employee – the rising cost of health insurance.

A study released late last year by the Kaiser Family Foundation said that between the spring of 2000 and 2001, smaller firms contended with a 12.5 percent increase in monthly premiums shared by employers and employees. Larger firms, which receive economies of scale because of their bigger payrolls, had a 10.2 percent increase.

The trend won’t change this year, when consulting firm Towers Perrin expects a 14 percent increase.

Karen Ignagni, president of the American Association of Health Plans, a Washington, D.C.-based trade group, said costs are rising in part because more people are going to the doctor and getting prescription drugs. Companies’ health care “expenditures are increasingly driven by use, not price increases,” she said.

Ignagni said hospital fees are climbing too, the result of mergers and consolidations in the past few years. “They don’t have the kind of competition that they used to,” she said.

But employers’ health costs are also rising because of the kind of coverage they choose, for example, shifting from health maintenance organizations to more flexible and more expensive preferred provider organizations. Many companies made that switch because their employees want more say over which doctors they can see.

Some businesses, particularly those that are struggling during the economic downturn, might feel that the only way to keep health care costs down is to stop offering coverage to employees. But while that step would be an immediate dollars-and-cents savings, it could cost them over time in terms of employee loyalty and the company’s ability to attract talented workers.

They do have other options. One is to ask employees to at least temporarily pay more of their premiums – they would probably prefer to take on more of the cost themselves than lose their coverage altogether.

Another possibility is to change plans. Joe Luchok, communications manager for the Health Insurance Association of America, a Washington, D.C.-based trade group, said business owners should comparison-shop for health insurance, but also shop prudently.

“You really want to make sure you get your insurance from a company with a good track record,” he said.

An easy way to compare insurers is by using the Internet. There are many Web sites that give quotes for coverage. Insurers of all sizes detail their plans in their sites.

More insurance companies are actively seeking small businesses, even those with a handful of employees, and that means their plans are likely to become more competitive. Some are offering new, more customer-friendly options, or allowing small businesses to design their own plans.

Jack Lord, a senior vice president with Louisville, Ky.-based Humana Inc., said a business doesn’t have to be an IBM to represent an opportunity for insurers like his company.

“If you look at the history of American business, small companies are the backbone,” he said. “They can be a profitable line of business.”

Luchok, with the HIAA, said employers also have other avenues of reducing their health insurance costs. He suggested encouraging employees to educate themselves about health care and costs.

“They should question their doctor and look for ways to use less expensive drugs that do the same thing” as the higher-priced medications, Luchok said. He said the drugs advertised on TV are likely to be the most expensive, and there may be cheaper alternatives that can help keep a company’s health care outlays down.

Luchok also recommended promoting healthier living habits among employees. He suggested paying for weight reduction programs for workers, or giving them free flu shots.

Employees are likely to look upon such programs as a welcome perk. Luchok said HIAA staffers, who are given free vaccinations and cholesterol screenings, have asked, “Are we going to have this again next year?”