Finding a health plan that meets your employees' needs is only the first step. You may also need to offer some of the bigger and better benefits larger companies provide, because they're often vying for the same workers. But, of course, large companies enjoy a significant cost advantage when it comes to health-care benefits, making for a less than even playing field.
The Health Research and Educational Trust says health-care costs for larger employers rose 4 percent between spring 1998 and spring 1999. "Smaller employers faced a very different experience," says Jon Gabel, vice president of the organization. The costs for small companies rose about twice as fast. "It's not that employees of small employers were sicker," explains Gabel. "Many large employers self-insure, while small ones have to purchase their insurance from health insurance companies."
Larger cost increases are on the horizon. This year health-care
premiums are expected to rise 12 to
20 percent for smaller employers and 8 to 14 percent for larger ones, according to Matt Quade, a vice president at employee-benefits provider AON Consulting's Bethesda, Maryland, office.
What's behind it all? "All the [managed care] companies were fighting for market share throughout the nineties by underpricing their products. Now it's catch-up time," says Gabel. "The small employer is the one who is paying for it."
In other words, the lower-priced products many managed-care companies came into new markets with have been hurting their bottom lines in recent years. They now see from experience how much the real costs are. According to Weiss Ratings Inc., over half the country's HMOs lost money in 1998-and those combined losses approached half a billion dollars.
Small employers have few options and little purchasing power when it comes to buying their companies' health-care coverage. "Rising costs hit small employers right between the eyes. They have no control when rates go up, and there's little they can do about it," says Patricia Halo, author of Managing Health Benefits in Small & Mid-Sized Organizations (Amacom), president of Halo Associates and founder of the Wellness Institute in New York City, which provides benefits consulting services and work-site wellness programs. One sick employee in a small work force can wreak havoc on the group's rates. "Carriers look at the track record of small groups very carefully," Halo adds.
Another issue: Several states have enacted legislation that makes it illegal to deny a group member coverage. While this has helped people obtain coverage who might have been rejected before, it's added another cost factor to the mix for business owners. "Since the states got involved in legislating health insurance in the last five years, we've seen many carriers pulling out of the small-group market," explains Edith Livingstone, a vice president at AON Consulting. And typically, less choice means higher prices.
Another detail adding to the consistently growing costs are state mandates such as those requiring infertility treatments to be part of health plans. That means an employer whose work force has little or no use for certain costly treatments must still provide them. "Small businesses are the ones underwriting state mandates. They get socked with paying the additional costs of each new mandated state benefit," says Richard Coorsh of the Health Insurance Association of America, an industry trade association whose members include 290 health insurance carriers. Because many large companies self-insure and don't buy coverage in the standard marketplace, they are largely exempt from these state mandates.