Posted on: Wednesday, November 10, 2004

Firms wrestle with healthcare

By Yuki Noguchi
Washington Post

WASHINGTON — Lucia Kane, who owns a Falls Church, Va., spa, spent the past three weeks fretting about health insurance instead of doing oatmeal facials and full-body wraps.

She estimated that she lost $3,000 in revenue while she pored over various options for healthcare for her 20 employees. None of the plans was ideal, and all were pricey.

Last year, after costs went up 30 percent, Capelli Hair and Skin Spa switched insurers and Kane agreed to contribute $50 of the $380 monthly cost. But five of her employees still decided they couldn't afford the insurance. When one of them got sick, Kane found a free clinic for the employee and drove her there.

This year, Kane is bracing for another increase.

"It's a panic; we're all nervous about it," Kane said. She said she fears that if benefit costs rise significantly, her employees will leave for bigger companies that can offer better deals.

In 2005, health insurance is expected to cost at least 10 percent more — marking five years of double-digit increases. A diminishing number of small businesses can offer health coverage to employees, according to studies by the Henry J. Kaiser Family Foundation, a nonprofit group that researches healthcare issues. The group found that 63 percent of small businesses offered healthcare coverage this year, down from 68 percent in 2001.

The National Association of Women Business Owners found that 50.1 percent of their members offered health insurance this year, down from 57.3 percent two years ago.

Small businesses sometimes have less profit to cushion the blow of higher benefit costs, and lower-paid workers often who cannot afford the increases, experts say.

In addition, many large companies self-insure, something small companies can't afford to do. And rates are more volatile if the risk is spread over a small pool of people.

"Small businesses very much feel up against the wall now," said Drew Altman, president and chief executive of the Kaiser foundation.

"They are trying to hang in, if they can, by shifting more cost to workers, cutting back on family and dependent coverage, and lowering wage increases." And some companies don't offer any healthcare coverage, Altman said.

Many small-business owners are struggling with the issue now because many policies are up for renewal in October and November.

Kathy Albarado, president of HR Concepts LLC, a Herndon, Va., human resources consulting firm that advises small businesses, said many companies are trying to figure out to how cut healthcare costs without hurting employee morale.

She tells them to meet with employees and collectively decide which options to choose. If employees feel they have some say in the decision, they are likely to feel less resentful.

Even if companies can't offer salary increases to offset the additional burden, they might be able to offer flexible work hours or time off, she said.

For the coming year, some companies are considering new alternatives such as health savings accounts, which were enacted in the Medicare Modernization Act of 2003, and introduced this year. The act allows companies or employees to make tax-exempt deposits into accounts that employees can use to pay for medical expenses.

Once that money is spent, the employee must pay some money out-of-pocket. The deductible is at least $1,050 and can be higher, depending on how the account is designed. The yearly maximum out-of-pocket cost is $5,000 for an individual or $10,000 for a family. After that, insurance will cover medical bills.

Money left over in the account carries over into the next year, and stays with the employee even if he or she switches jobs.