Healthcare costs mount for businesses

By Dan Nakaso
Advertiser Staff Writer

The expected 11.5 percent increase in Sharron Courter's HMSA bill means she won't be getting a new copying machine this year for her accounting firm in Kahului, Maui. And she also might have to cut back hours for one of her four employees.

From left, employees Jay Melchor, Maribel Mores and Fely Gumera prepare lunch plates at I Love Country Cafe on Pi'ikoi. The restaurant has been hard hit by healthcare costs. Gregory Yamamoto • The Honolulu Advertiser

"We trimmed one-third of our work force over the past couple of years," Richard Chan said. "We've cut hiring, cut people's hours. But I can't raise my price or I'd be out of the market."

For the first time in years, members of the Chamber of Commerce of Hawai'i placed healthcare costs as one of the three top issues concerning businesses. The survey was conducted even before HMSA and Kaiser recently announced plans to raise costs again.

In an era where many segments of Hawai'i's economy continue to struggle, small-business owners feel particularly frustrated and powerless over the rising cost of healthcare. Many say they have no choice but to continue to pay higher premiums to either of Hawai'i's two major health insurers — HMSA and No. 2, Kaiser Foundation Health Plan Hawaii.

"I don't understand why we have to keep paying so much," said Jennifer Macagnone, co-owner of Hairspray! Salon in Kaimuki. "I just switched from Kaiser to HMSA, and then HMSA raised its rates."

The rising rates are also leading to worries that business owners will cut employee hours below the 20-hour-per-week threshold that require health coverage. And that's triggering fears that uninsured patients won't get preventive care, which could lead to even costlier procedures, surgeries or hospitalization down the line that will drive up expenses even more.

"It's going to cause a higher unemployment rate, and there are going to be more people without healthcare," Courter said. "There are certainly going to be less dollars to spend in the overall economy, that's for sure."

Nationally, healthcare costs for small businesses are rising an average of 15 percent a year, says the National Federation of Independent Business in Washington, D.C.

Some companies' rates have jumped 25 to 50 percent in one year. And one business in the Southwest even saw a 75 percent increase, said Jessie Brairton, manager of federation legislative affairs.

"It tends to happen to small companies of three to five employees, who only have a choice of one or two plans," Brairton said. "There's no way to drive down prices. And instead of annual increases, they're now coming every six months. There's no end in sight for these poor businesses."

Despite the anxiety of Hawai'i's small-business owners, rates are rising less dramatically in the Islands than across the country, said Lawrence Boyd, an economist with the Center for Labor Education Research at the University of Hawai'i-West Oahu.

"They're going up all over," Boyd said, "but they're going up a little less in Hawai'i. The proportion of money that goes into healthcare in Hawai'i is the smallest in the union."

Hawai'i pays 5.6 percent of its gross state product on healthcare, Boyd said. The rest of the country averages 12 to 13 percent.

So Boyd is surprised that business people aren't more upset about the cost of gasoline and energy, which are rising at a faster rate than healthcare costs.

But Boyd hardly defends healthcare increases — in Hawai'i or on the Mainland.

"I haven't seen a good explanation of why the costs are going up," he said. "I don't understand what's driving these cost increases. They're not going up in other countries."

The answer comes in part from America's demand for high-quality medical care, said Kaiser spokes-man Chris Pablo.

"We want the best, we want the latest," Pablo said. "We want the name-brand drugs. We want our healthcare system to save us from our bad habits, and we don't want to pay for it. We want somebody else to pay for it, and in America, that's mostly the employer. And in a free-enterprise system, the entrepreneurs who develop these therapies and new diagnostic tools and new drugs have to recover the costs of research and development. So whenever a new device or service or whatever enters the market, then the higher the costs will be."

Pablo sympathizes with small-business owners. And he shares their fears that they might compensate for higher rates by reducing workers' hours.

"I don't blame employers for complaining, because they are the big payers," Pablo said. "Those in the private sector who bear the greatest share of the costs have a right to complain. There are no easy answers."

One solution, Pablo said, may come from changing consumers' expectations or their demands from healthcare.

People such as Macagnone say they're doing their part. She tries to stay healthy and only buys coverage for her husband and 8-year-old son to protect against emergencies.

"I just have it in case my son breaks his arm or we get into a car accident," Macagnone said. "I wanted just emergency-room insurance, but you can't buy that here."

To try to reduce costs, Benedict Palmeri, the owner of Image Beauty Emporium and Salon on Queen Street, tried to form a hui of Hawai'i beauty salons five years ago to purchase bulk health insurance.

He had done it before in 1986 in New York and saw the cost of individual coverage drop.

But Hawai'i's insurers refused, Palmeri said, and would only cover each business separately. And at higher rates.

"They wouldn't let us go in as a group," he said. "That way they can charge more for a single salon."

So now Palmeri is resigned to a fate of paying more.

"The bottom line has gotten lower, and yet everything still goes up," he said. "There's just nothing you can do about it."

A group of Hawai'i businesses, insurers, healthcare providers and labor is looking to help find answers.

Working under the title of the Pre-paid Health Care Act Work Group, people from all sides of the issue are awaiting the results of 10 University of Hawai'i researchers studying the factors driving Hawai'i's healthcare costs and the history of rate increases.

The preliminary results are expected in June, with final recommendations scheduled for November, said Gregg Yamanaka, co-chairman of the group.

The group hopes to then make recommendations to ease the situation, either through new legislation or perhaps administrative rule changes, Yamanaka said.

For now, it's too soon to say what changes might be recommended, he said.

"At this point, I'm not even sure that legislation is the problem," Yamanaka said. "That's what we're trying to find out."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.