Business Opportunities: On-Line Articles - Health Care Is a Daunting Challenge For Most Small Business Owners

Health Care Is a Daunting Challenge For Most Small Business Owners
by Michael J. McDermott

Small business owners might be surprised to hear that health care cost increases are slowing down, at least on a statistical basis. But that does little to soften the blow for businesses struggling each year to continue offering reasonable health care coverage to their employees while being pummeled with constantly rising premiums.

The rate of increase for health insurance premiums climbed steadily from 1999 to 2003, when it peaked at 13.9%, according to the Kaiser Family Foundation. It's eased a bit since then, to 11.2% in 2004 and 9.2% last year, but annual increases still averaged 8.6% over the past 10 years.

The cost and availability of health care for themselves, their employees and their families is the No. 1 concern of America's small-business owners, says Dan Danner, executive vice president of the National Federation of Independent Business (NFIB). "Health care has been the top-ranked issue in NFIB surveys since 1986, and the concern has only continued to grow as the cost of health insurance increases,"he notes.

Of the 27 million working people who are uninsured in the U.S., 63% of them work for businesses with fewer than 100 employees, NFIB estimates. The organization's research and surveys confirm that most small businesses want to be able to provide coverage to their employees, but excessive premium costs present a roadblock they simply cannot overcome.

Companies generally can deduct premiums paid for insurance related to their trade or business, according to IRS Publication 535, and group hospitalization and medical insurance for employees (including long-term care insurance) falls into that category.

However, those deductions simply are not enough to justify the cost of premiums for many businesses. ItÕs estimated that fewer than one-third of small businesses in the U.S. offer health care insurance.

The rate of increase for health insurance premiums climbed steadily from 1999 to 2003.

The federal government has tossed out a few carrots in this area recently, most notably beefed up Health Savings Accounts (HSAs), consumer-driven health plans (CDHPs) and flexible spending (cafeteria) accounts. The business sectorÕs response has been lukewarm so far but may be picking up steam.

While they have been around in various forms for a number of years, HSAs have become more attractive to small businesses and self-employed individuals as a result of changes enacted as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

Like the Medical Savings Accounts they replace, HSAs are tax-sheltered accounts similar to traditional Individual Retirement Accounts but designated for use in covering medical expenses. Some employers are incorporating them into a strategy to cost-effectively manage employee health benefits by combining an HSA with a high-deductible (catastrophic) health plan (HDHP).

LOWER COST

Employers benefit because HDHPs generally cost less than conventional health care coverage, and HSAs offer investment options that can provide additional income opportunities for employees.

The number of HSAs has increased sevenfold to 3.2 million since the enhancements took effect in January, 2004, according to the U.S. Treasury Dept. It projects there will be 14 million to 21 million accounts covering 25 million to 45 million people by 2010.

Consumer-directed health plans, which combine an HDHP with either an HSA or a health reimbursement account, are also growing rapidly. Enrollment in CDHPs is approaching 10 million members in 2006 and is projected to reach 40 million by 2010, according to a recent study by the Kaiser Family Foundation and the Health Research Education Trust.

A solution favored by NFIB is the authorization of Small Business Health Plans (also called Association Health Plans), which would allow small businesses and other organizations to band together under the umbrella of trade associations to purchase health insurance in a manner that would be subject to the same laws, regulations and price efficiencies as those affecting large employers and trade unions.

Although the Small Business Health Fairness Act of 2005, which would have authorized such plans, passed the House that year, it was killed in a Senate filibuster in May of 2006. NFIB vows to continue the fight and urges all small-business owners to press their senators to support the proposal.

For Phil Blade, there is some irony in the fact that his business, Blade Insurance, does not offer health insurance. As an insurance agent, he focuses primarily on auto, home, life and business insurance, but heÕd like to be able to offer health care coverage to his agency's handful of employees.

"You can only afford to lay out so much money if you want to stay in business."

"It's just too expensive," he says, echoing the response of so many other business owners in his situation."We've looked at all the possibilities, including HSAs and other alternative plans, but we can't make it work on a cost-justification basis."

Blade believes that the number of small businesses offering health care insurance is actually on the downswing, and that employees and prospective employees at such companies no longer expect to receive that benefit. "Business owners are saying they'd rather just give their employees some more pay and let them decide what to do with it," he says.

Blade doesn't feel that the inability to provide health care insurance is a major concern for businesses like his. "I don't think it's a big issue for small businesses any more because it's coming full circle, in a way," he says. "You can only afford to lay out so much money if you want to stay in business and keep any employees working."

NATIONAL SOLUTION?

Blade is adamantly opposed to nationalization of the health care system as a solution to this problem, preferring to let the free market sort things out."I don't want any national government intervention. It's an issue of personal responsibility, which has become an unpopular topic in this country."

Bestway-Ran Communications, a provider of paging, cellular and Internet services to business and residential customers, offers health insurance coverage to its 16 employees, according to Mickey Summer, the company's vice president.

There is a 90-day waiting period for new full-time employees, and the company pays 75% of the premium for employees with up to three years tenure. After three years, the company pays the entire premium for the employee; dependent premiums are always the responsibility of employees who opt for that coverage.

"Sorting out the insurance coverage, analyzing the impact of the premium increase and figuring out how we're going to pay for it has become an annual routine for us," Summer says. "Our policy comes up for renewal every year, and the premiums get increased every year-often by a substantial amount."

Bestway-Ran has looked at HSAs, CDHPs and other alternatives. One reason it hasn't pursued any of those options is that its employees are located in three different towns, and none of the plans available include providers covering all three areas.

Summer believes that the difficulty of providing health care insurance is a huge problem for companies like his. "There's no doubt that health care benefits play an important role in employee recruitment and retention. It used to be easy to offer them, but now it's getting harder and harder to do," he says.

He also feels this situation is putting the U.S. at a disadvantage in the global marketplace when U.S. companies compete against companies from countries with nationalized health care.

Enrollment in CDHPs is projected to reach 40 million members within four more years.

"Health care premiums in Canada range from zero to a maximum of $100 per month, all based on income," he says. "A Canadian company competing with a similar American company has a big advantage because of that." Summer is not sanguine about the prospects for a quick resolution to the health care problem. "There are just too many interest groups involved, too many factions that are making a lot of money now and would make a lot less if the system were nationalized," he says.