From the October 2001 issue of Entrepreneur

In the past year, the cost of providing James Carroll's 50 employees with health insurance has gone up more than $50,000. That doesn't help the bottom line at the Sharon, Massachusetts, entrepreneur's company, Crescent Ridge Dairy Inc. Nor does it help Carroll's employees, who pay a fourth of the premiums.

Rather than cut his company's contribution, Carroll is looking for lower-priced coverage. It hasn't been easy. "You may lower the cost but find the policy doesn't cover some things," Carroll says. "And I can't see having somebody not go to the doctor because their coverage doesn't cover what's wrong."

Carroll, 46, isn't the only entrepreneur feeling blue about health insurance costs. A Kaiser Family Foundation study reported employer costs for health insurance rose 9.1 percent last year. Firms with three to 199 employees fared worst, seeing increases averaging 12.2 percent.

That's just the beginning, warns Joe Teeling, managing director of Marsh Advantage America, the West Des Moines, Iowa, division of insurance company Marsh & McLennan Cos. "This year we're seeing higher increases than we saw last year," says Teeling, whose unit specializes in small businesses. "I'd say they're generally 10 to 30 percent higher."

The financial impact can't be ignored. In the Kaiser study, 76 percent of small firms without employer-sponsored health plans cited cost as a reason. "A lot of times," Teeling says, "it's either drop the insurance or close the doors."

Softening the Blow

Small employers seeking a middle ground are shifting more of the costs to employees. They're redesigning plans to include deductibles on most claims, no longer allowing unlimited doctor's office visits for $10 or $20 copays, and raising annual deductibles sharply.

Another option is to contribute a set amount of money to medical savings accounts (MSAs) employees can use to pay for their health-care expenses. Combined with an economical employer-sponsored group plan with an annual deductible of, say, $5,000, MSAs can be discriminately used for less-serious illnesses while employees are still protected against catastrophic health costs, Teeling says.

Entrepreneurs should also look for health plans sponsored by trade associations, industry groups and professional organizations. While changing regulations have made these plans less common, some still provide good value for health-conscious employers.

Future Health

The forces driving employer health insurance costs up are formidable. Rising prescription drug costs, aging employees, cost-shifting by hospitals as Medicare payments decline, and costlier and more sophisticated medical technology lead the list. Teeling doesn't see these trends reversing soon. "I really believe you're going to see upward cost pressures for a while," he says.

There is one hope, however. As more costs are shifted to employees, they'll likely become better-informed health-care consumers, understanding more about the cost and necessity of certain procedures, and the quality of the providers. They'll help hold down your costs as they try to hold down their own.

The problem is, this is a very different model from the health coverage most of us use. Many employees have recently navigated the transition to managed care. Now they face another shift in how health care is delivered, one that requires them to shoulder a much larger share of the load. "That," Teeling says, "is going to require a sea change."


Austin, Texas, writer Mark Henricks has covered business and technology for leading publications since 1981.

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