Through the Roof

In the mid-1990s, Ron Hatch, 56, owner of Hatch Furniture in Yankton, South Dakota, thought his health insurance costs were horrendously high. "Our premiums were rising at over 10 percent each year and were becoming one of our largest expenses," he says.

Then Hatch learned the true definition of horrendous. In the past three years, a confluence of factors has forced the furniture company's health insurance costs into the stratosphere. "Last year our premiums jumped by about 50 percent, since some insurance companies pulled out of South Dakota and more health-care rules were written into law," he says. Co-pays were raised for the furniture business's 28 employees. Unable to afford the higher fees, 19 workers no longer have employer-funded insurance, a move that could put their health in serious peril. The strategy backfired in terms of the budget as well: As the pool of insured individuals decreased, each person's premium rose, wiping out the savings Hatch was aiming for.

Hatch is hardly alone. Nationwide, small businesses are about to be swamped by a perfect storm of changes that should prompt drastically higher health-care costs for 2002, 2003 and beyond. A recent poll by consulting firm Hewitt Associates found that 99 percent of employers are "significantly or critically" concerned about rising health-care costs, which are turning into a crisis for many small companies. In fact, warns Steve Sobiek, executive director of the Independent Business Association of Wisconsin, unless small businesses quickly address this brewing hurricane, they could soon wind up paying more in health benefits than in salaries.

This article was originally published in the September 2002 print edition of Entrepreneur with the headline: Through the Roof.