Health Benefits Weigh On Bottom Line

As the cost of providing health care coverage to employees continues to rise at rates well above inflation, many small business owners are being forced to cut down, or eliminate altogether, health benefits for their workers, a recent survey showed.

Small business owners, according to Dan Danner, senior vice president at the National Federation of Independent Business (NFIB), "are faced with some tough questions. Will employers be forced to pass another premium increase on to employees? Will employers have to further prolong the time frame required before they can offer benefits to a new worker? Will they be faced with the difficult choice of whether to offer coverage only to an employee instead of the employee’s entire family? Or, will they be forced to stop offering health care altogether?"

Danner was commenting on the nonprofit Kaiser Family Foundation’s "2004 Employer Health Benefits Survey," which found that many U.S. employers are still attempting to absorb at least some of these premium rate hikes, rather than passing them on to employees. But results indicated that the effect of rising health care insurance costs is having an impact on the number of companies offering health coverage, the quality of the coverage, and the amount both workers and employees are forced to spend to get insurance.

Between spring 2003 and spring 2004, the survey found, premiums for employer-sponsored health insurance rose by an average of 11.2%-the fourth consecutive year of double-digit growth. Since 2000, researchers said, premiums for family coverage have grown by 59%, compared with inflation growth of 9.7% and wage growth of 12.3%. Average annual premiums for employer-sponsored coverage during the 2003–04 period were $3,695 for single coverage and $9,950 for family coverage.

Researchers noted, however, that the percentage of premiums paid by employees remained unchanged over the last several years, with workers paying 16% of the cost of single coverage, and 28% of family coverage. But while the percentage contributed by employers toward single coverage was roughly the same for larger (200 or more employees) and smaller (3–199 employees) businesses, large companies paid significantly more on average than their smaller counterparts towards family coverage.

"Small firms, who pay their workers less on average than large firms, may have a particularly difficult time fitting family coverage into their employee compensation packages if premium growth continues at recent rates," researchers concluded.

The survey also found that employee cost sharing continued to rise last year. Slightly more than half of workers have health plans with deductibles, and the vast majority make copayments for physician visits and prescriptions.

The percentage of U.S. companies offering health benefits to their employees decreased from 68% in 2001 to 63% in 2004, researchers noted. The fall, they said, "is driven largely by a significant decline in the percentage of all small firms offering coverage during this time." The smaller the company, the less likely it was to offer health benefits, survey results indicated. The likely reasons for this drop, researchers said, were double-digit premium increases, combined with a slow job market.

"Policymakers will want to watch these trends closely in coming years to determine whether these lower rates of offering and coverage [among small firms] represent a permanent loss to the system, or whether they are temporary changes that will improve with the economy and lower rates of cost growth," researchers warned.

In an effort to reduce costs, 56% of the employers surveyed said they had shopped around for a new plan over the past year. Of those companies, 31% said they had moved to a new insurance carrier, and 34% said they had changed the type of health plan they offered. Overall, most respondents were skeptical of market strategies aimed at reining in premium growth. Relatively small percentages of those surveyed rated as "very effective" initiatives such as disease management, consumer-driven health plans, tightly managed care networks and higher employee cost sharing.

Dan Danner of the NFIB has suggested that nothing short of a major shift in public policy will bring relief to small business owners saddled with increasingly unaffordable health care premiums. "Small business owners are looking for policies and practices that will make affordable, quality health care a reality for America’s job creators, as well as those that address the core of the problem-the ever-increasing cost of health care," Danner said. "When Main Street entrepreneurs head to the ballot box, they’ll be casting their votes for candidates who are ready to take meaningful action to address the same hard choices small business owners have to make each day."