Health care costs are crippling small businesses

By John Sinibaldi

I've got news for the folks doing the International Foundation of Employee Benefit Plans' survey:  Smaller businesses, especially those defined as true small businesses with two to 50 full-time employees, are strapped beyond belief when it comes to paying ever-higher premiums for health care.

The survey's results are NOT indicative of what is happening in the small group market (much like the Kaiser Family Foundation's (KFF) annual survey on total premium and the portions shared by employees, which always makes me laugh. The employees at my businesses would kill to have the low percentage of total premium passed on to them that is reported in the KFF survey).

Across the board, the 100+ businesses I represent, all of them two to 50 full-time employees, have received increases between 13 percent and 75 percent this year.  The average has been around 20 to 24 percent.  That's on top of more than 15 percent average increases last year, the year before, and the year before.

Some of those increases have been mitigated by moving to High Deductible Health Plans (HDHP), but we didn't get premium savings by doing so, we only leveled premiums for a year or so. Now, the underlying increases are causing the HDHPs to rise just as fast (and maybe even faster; more on that in a minute), so employers are moving toward ever bigger deductibles.

Just five years ago, average deductibles for my employers who had deductibles (many were still on straight copay HMOs) were in the $500-$1000 per covered member range.

Now, I have only a handful of employers still on HMOs, and they have huge co-pays, like $1,500 inpatient hospital co-pays or large deductibles just like the more traditional insurance plans. Most deductibles range from $2,000 per covered member to as much as $10,000 for a cumulative family deductible.  And many of those are HDHPs, with no benefit for covered sickness or injury or prescription benefits, until the deductible is met. Even with these plans, premiums are simply too high for many low-wage and middle-income folks to pay.

Most of my small businesses have been frightened to death by the health care industry's warnings against  governmental intervention. The most common remark I receive is "I don't want government involved in my health care!"  However, the second most common remark I am receiving now is "I don't know how much longer I can pay for this. Frankly, the government can't do any worse."

I have an unremarkable quote in a Nov. 17 WSJ article - "Now the insurers are catching up." - on the coverage problems facing small business. What I meant to convey to Ms. Fuhrmans, the reporter, was that the premise that Consumer Directed Health Care would give consumers more skin in the game and slow the rise in health care costs was, and remains, a myth.

I represent the two businesses profiled in the article. Their experiences are not anomalies in the small group market. Rather, they are indicative of the dramatic health insurance changes that have affected small businesses. Just five years ago, one of the businesses had a very traditional PPO product, with low copays, low out-of-pocket expenses for major medical claims, and low-cost prescription drugs. The other employer also had relatively affordable costs, both for themselves and their employees. More importantly, both businesses felt that, while expensive, the costs to them and their employees was not egregious.

Fast forward to today. Both businesses feel that they're being hosed on their health care costs. They don't care what is behind the cost increases. It also makes no difference which carriers are involved, as all struggle with rising costs and ultimately pass those costs on to employers and their employees. The employers only know that the current rate of increase (for premiums, for payroll deductions for the employees' portions, and for out-of-pocket expenses at time of claim) is simply unsustainable.

Think about it. Only about 36 percent of small businesses in Florida still offer coverage - this is far less than the national average of 52 percent, and that number continues to plummet.

So an increasing percentage of small businesses now feel that governmental intervention of ANY kind is preferable to the present untenable situation. In the small group marketplace, the pinch has been here for a long time, and has turned into a hard squeeze. Soon, it will squeeze the life out of the markets -- at which point the small group market will implode.

At this point, the current system only works for affluent employers, who can still pay the exorbitant premiums but who don't pass the bulk of that cost along to their employees. It also still works for businesses with high-income employees who can absorb the cost. That typically means larger businesses and institutional purchasers like local, state and federal government organizations. It works for purchasers with enough capital and revenue to offset the bulk of the costs, whose employees haven't yet felt the "pinch" of high health care costs.

An interesting and often overlooked side note is that in almost all surveys of employee satisfaction, employees of larger employers and those employers that pick up the bulk of the premium are typically more satisfied with the current system than employees in small businesses, which are often not included in such surveys.

Finally, the most popular plans I now sell to small businesses are plans with a flat $5,000 individual/$10,000 family deductible (no carrier responsibility for anything other than pure preventive until the deductibles have been met). A similar $1,500/$3,000 HDHP is also popular. I very rarely sell more traditional PPO co-pay plans because the businesses I represent (mostly light industry and service) cannot afford them.