Cost of health insurance top concern for small businesses

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The number one issue facing small business employers and their employees is the rising cost of health insurance, report statewide and national surveys, and the increases are coming at a time when some health insurers are posting record profits.

Collectively, the nation’s life and health insurers recorded a $4.5 billion profit for the first three months of 2002, representing a $1.1 billion – or 32.8 percent increase over the same period a year earlier, according to Weiss Ratings Inc., a company that issues ratings on more than 15,000 financial institutions, including insurance companies.

However, Colorado insurance companies are not pulling in record profits, and some continue to lose money. Aetna pulled out of the small-company market after losing some $30 million in 2001, said Tim Jackson of the Colorado office of the National Federation of Independent Business. Many for-profit insurers in Colorado are making less than five percent after expenses, the NFIB said.

High costs have resulted in problems for companies and employees, Jackson told the Business Journal. Employers are increasing the amount its employees pay, co-pays are up and reductions in covered items may decrease, Jackson said. Employers continue to pay the majority of employee insurance costs.

“Health care cost remains the number one problem small business owners face both statewide and nationally,” said Jackson. The survey by the NFIB shows that the vast majority of small businesses in Colorado have had increases of 20 percent, and one in five face increases of 40 percent, added Jackson.

One in 10, Jackson said, faced increases of 50 percent.

The NFIB, with about 12,000 members statewide, will lobby the Colorado legislature this term to halt top-down, state-mandated benefits. Those mandates escalate the already high cost of insurance, Jackson said.

“There needs to be a halt to these top-down… cost-driving, choice-limiting… health care mandates that when passed actually exacerbate the health care cost problem and price more Coloradoans out of reach of health care coverage altogether,” Jackson said.

A survey of NFIB’s Colorado members identified several areas that are driving higher insurance costs.

Among them: top-down mandates from the state legislature and litigation, an aging population, increased utilization, general inflation, higher priced provider contracts, and new medical technologies. Another major factor is the high cost of pharmaceuticals.

Respondents also said being able to pool their employees with other small companies nationwide would result in greater purchasing power.

Jackson said since 1997, 20 new mandates were imposed on small businesses, while large businesses are exempt.

“Educating employees on how to better use health care coverage is important,” said Sharon Krell, owner of Imaging Systems in Colorado Springs. However, preventing mandated coverage is just as important, she said.

The cost of changing carriers so she can maintain affordable coverage for her employees is an additional burden on her company, said Krell. She said it could take weeks of research to locate companies, and then evaluate their coverage and costs.

Employers are looking for ways to reduce the impact of rising costs on their employees, and themselves. One of the most popular is setting up a medical reimbursement account, which allows employees to pay for eligible out-of-pocket medical and dental expenses with pre-tax dollars.

Under the medical reimbursement account, employees may reserve a portion of their income for expenses, and funds in the account are paid back to the employee for eligible out-of-pocket expenses. The plans have different names, another being defined contribution programs. The savings result because the money that is reimbursed to the employee is pre-tax income, meaning no taxes were withheld.

The Census Bureau reported that 14.6 percent of the American population, or 41.2 million people, were without medical coverage in 2001. That was 1.4 million more than the previous year.

The open enrollment period for the estimated 80 million Americans who participate in employer-sponsored health insurance plans is underway, and few like the news they are hearing.

“Health care costs have gotten totally out of control, and it’s become clear that employers have to be even more active in sharing the burden with employees,” said Wendy Rhodes, a consultant at Hewitt Associates, a national benefits consulting firm. “Employees will have to face the music.”

Colorado voters have a chance to influence some future costs when they go to the polls on November 5. Referendum B is a ballot measure supported by the Colorado Health and Hospital Association. If passed, Referendum B would allow public hospitals to collaborate with private businesses on some services. That would result in cost savings and less duplication of services, the association said, reducing consumer costs in the long term.