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.
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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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