Health insurance pricey, choices skimpy for small employers forced to cut costs
but for CEO Pete Snyder, it's a decision that is really no decision at all. Despite skyrocketing premiums year after year -- up 30 percent in 2003 alone -- Snyder can't stop providing health insurance for his 39 workers. Diagnosis: Critical, costly - 2004-05-10 - Washington Business Journal
EXCLUSIVE REPORTS
From the May 7, 2004 print edition
Diagnosis: Critical, costly
Health insurance pricey, choices skimpy for small employers forced to cut costs
Neil Adler
Staff Reporter
For CEO Pete Snyder, it's a decision that is really no decision at all.
Despite skyrocketing premiums year after year -- up 30 percent in 2003 alone -- Snyder can't stop providing health insurance for his 39 workers.
"To be a good employer, you've got to bite the bullet," says Snyder, founder and CEO of New Media Strategies (www.newmediastrategies.net) in Arlington, an online brand promotion and protection company.
Snyder is fortunate; his company has been successful enough that he can absorb the yearly increases without going under. He's not the norm, though, according to a new nationwide study. Many small business owners have had to scale back what they offer -- or reduce the amount of the premiums they bear -- as costs continue to soar. Many others simply can't offer coverage at all.
Snyder is adamant, however, that providing good benefits is critical to recruiting and retaining employees. So he takes a deep breath and writes the check each month. It would be easier to do, he admits, if it weren't so tough being a small fish in a big pond.
"They try to shove you off," he says of local insurers. "There's no bedside manner with small companies."
Insurance is tough to come by for small businesses nationwide, according to a recent study by the Commonwealth Fund (www.cmwf.org), a private foundation that supports independent research on health and social issues and makes grants to improve health care practice and policy.
The study finds small businesses proportionally pay far more in premiums and deductibles than large employers that have access to better plans because of their size.
Premiums jumped almost 16 percent for firms of three to 199 workers in 2003, but rose only 13 percent for firms with 200 or more. Small firms not only get less value than their large counterparts when they provide benefits to their workers, but also face greater financial hazards in doing so, according to the survey.
"It's a risky business to go it alone when it comes to health insurance," says Jon Gabel, a vice president for the Washington-based Health Research and Educational Trust and one of the report's co-authors.
In some respects, most smaller employers are trapped.
Because they don't have the size to self-insure, they must buy their coverage from carriers at unfavorable rates because the risk can only be spread among a small number of employees. A large, self-insured employer takes on the risk itself and can negotiate better rates.
Snyder and other local business owners say securing better health insurance options for small businesses has to be a high priority among the corporate community and government officials. "It needs to be more competitive," Snyder says. "Small businesses are the backbone of the economy."
LOCAL WAR STORIES
Small and medium-size employers in the Washington area say they're fed up with escalating costs, but don't have many options for fixing the problem. And the options they do have aren't appealing: Make their employees foot more of the bill or drop coverage altogether.
Geppetto Catering (www.geppetto
catering.com) in Riverdale, for one, can only afford to provide coverage for its managers. The other two dozen employees have to fend for themselves. Partner Josh Carin says he would love to offer insurance to all his employees, but he just can't make it work.
"If I were to take on that expense, it would hit me hard," Carin says.
He says it costs about $43,000 just to cover the three managers each year in a company that generates $3.3 million in revenue.
"It's expensive as hell," Carin says.
Owners of HDN Studio in Alexandria (www.hdnstudio.com) simply won't cut health coverage. Principal Stacey Hudson says that's partly because the company's other principal, Chris Dinsmore, is a breast cancer survivor.
When the two-person graphic design firm hired a third employee, who will join in August, it was a significant move. Fortunately, Hudson says, the new staffer has coverage through her spouse.
When the studio hires more workers, it will do everything possible to provide coverage for them -- even though the company's premiums rose 20 percent in 2003. To put it in perspective, the two-person firm pays $2,700 in rent per month, and $1,400 a month -- about 60 percent of that -- in health premiums.
"That's ridiculous," Hudson says.
Snyder says the thing that has saved him is New Media Strategies' triple-digit growth in recent years, which has allowed the firm to expand to roughly 40 employees and helped him pay his health benefits costs. Quality coverage is vital, Snyder says, because healthy workers are more productive.
Snyder acknowledges that he's lucky that his work force is fairly young and, so far, has not had to deal with significant health care issues that would raise rates even higher.
you say you want a REVOLUTION?
There are options to mitigate costs, such as association health plans, which would allow small employers to group together across state lines for insurance pools and are being debated in Congress, and the new health savings accounts. But health care experts say these are only Band-Aid solutions.
Over the long term, says benefits consultant Chris Mathews, consumers need more education about patient safety, medical quality and costs. He says the cost of medical procedures varies widely, depending on the location and financial status of the health care provider. When consumers know what providers charge and the level of care they offer, they can make informed decisions. Smarter consumers bring competition and more efficient health practices.
"A revolutionary change in the health care delivery system is needed," says Mathews, health care practice leader in the Washington office of New York-based consulting firm Segal Co. "Getting people to go to the right place the first time -- things would be a lot cheaper."
Employers need to encourage better health among their workers, Mathews says, or perhaps even require it, with obesity creeping up on tobacco as the nation's leading health risk. Maybe, he suggests, employers should charge higher premiums to those workers who choose not to live a healthy lifestyle.
"We can only shift costs for so long," Mathews says. "We have to get to the root of the problem."
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