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The Burdening Cost for Small Businesses’ Health Care Insurance Is Far From Healthy
Health Care Cost Burden: Small and large businesses alike struggle to keep up with double digit health insurance premium increases; what are the options and what does the future hold?
By Joshua Hughes
Date Posted: 8/1/2007
You would think we could come to a solution over the current health care cost vexing so many small businesses and people in the United States today. The only real question that applies to the issue is how can we fix it, and can the U.S. emerge as a leader in health care if we develop a concrete solution?
We can see that as premiums rise, the more inability there will be to afford coverage. With fewer people covered, it’s obvious to see that it will affect the nation as a whole. The medical industry is setting up a domino effect that will trickle down into every part of the economy itself.
If a company wants good production from its workers, it needs to keep them happy and content. Full coverage will certainly help keep employees happy, but with the rising cost of insurance not only for small businesses but larger as well, the future continues to look more grim in keeping benefits up to par and employees happy.
It’s only going to continue getting harder, because double digit increases in premiums are expected to continue in the near future. Past that, most are unsure what outcomes will look like, but right now nothing is promising.
Kathy Dietrich, Operations Manager of Commercial Lumber and Pallet Company (CLPC) and Vice President of Priority Pallet, agrees that double digit increases will continue annually.
“The last thing we want to do is let anyone go. We want to keep employees happy and productive,” Dietrich said.
In May they recently renewed their insurance plan with Blue Cross Blue Shield after finding no other avenue for a better insurance plan.
“We are always searching for new plans, but we can’t beat the plan we have right now with Blue Cross,” said Dietrich.
Regardless of having the best plan for their needs, rates with Blue Cross are still rising, forcing CLPC to cut costs anywhere they can so that they can continue to give their employees the full coverage that Dietrich believes they deserve.
Health and safety for CLPC employees in this high risk job is a top priority to the company. Keeping employees content and encouraged enhances product quality through production control. They know they are taken care of.
With less insurance coverage being given to people, there is a greater effect trickling down from that onto the nation as a whole.
Senator Kennedy of Massachusetts proposed a bill that would require a national healthcare mandate for all Americans. Under the bill businesses would pay 7% of payroll and workers 1.7% of their pay.
This new ruling would require owners seeking to cover themselves to replace contract workers with payroll employees. Payroll taxes would expand directly to more employees.
Small companies with less than 50 employees will be affected by this the most, because small firms often utilize contract workers more often. Now they will have to add payroll taxes along with other various costs. In the past this wasn’t a problem; employers often avoided paying taxes by passing on that responsibility. Small businesses usually purchase healthcare insurance after they purchase other insurances that they have to have as a business.
If other states follow in Kennedy’s footsteps, requiring all of a state’s citizens to purchase coverage, the rope on smaller businesses will tighten considerably whether employers pay their employees’ insurance or contribute to an insurance pool.
Many companies that use benefits to draw in solid potential employees, such as full coverage, will have an increase in costs from spending more on benefits, because all companies will have a state required cost for healthcare insurance that must be covered. It may still be in a company’s best interest to spend the money on benefits to attract promising future employees.
Now employers face the decision of how much and in what manner they will cover insurance cost. Under Kennedy’s plan, companies are looking at the two options of paying into a state subsidized pool or subsidizing their employees’ premiums.
Dietrich said that they have been able to keep profits relatively the same by making cuts in other programs. Whether it be a new phone system or something else, they have been able to remain stable and continue to keep their workers happy.
But what will happen to companies when there are no more less significant places to make cuts?
One solution for smaller businesses, that seems to be a growing trend for healthier employees, is HSAs, or Health Savings Accounts. HSAs help save money on healthcare, and are an inexpensive way for an owner or employee to insure themselves. There are tax benefits for nearly every dollar put into the plan.
HSAs were created to make a way for individuals to have an inexpensive way to build up savings for medical expenses. While helping to manage medical expenses, they also help reduce the continually growing costs of healthcare. It’s a program for companies who never thought they could afford healthcare insurance, and for the companies who can afford coverage it’s a way for them to cut benefit costs by nearly two thirds by switching to HSAs.
Along with HSAs there are other possibilities, such as HMOs (health management organizations), PPOs (preferred provider organizations) and POSs (point of service). HMOs are the most common form of managed care, but other possible plans give clear insight to a possibly more efficient avenue for insurance.
HMOs main goal is to cut costs anywhere possible to create affordable solutions for insurance policies, while PPOs consist of doctors and hospitals willing to offer care for members at lower costs.
Still POSs offer benefits that can be found in PPOs and HMOs, but HSAs seem to be growing in popularity among small businesses for a solid avenue in cutting health insurance costs. HSAs are tax exempt accounts that will build to pay certain medical expenses. These accounts could reduce small business health insurance costs and give small business employees tax breaks.
In an HSA, contributions and withdrawals are tax free and tax deductions can still be claimed on 1040 forms. HSAs are best suited for healthy employees who don’t need to see the doctor regularly.
Major reasons for the high cost of healthcare insurance include high prescription drug costs, a rise in the cost of medical technology, and high administrative costs that are due to a complex multiple payer system in the U.S.
Dietrich said the pharmaceutical world is partly to blame with its rising costs and increasing prices. Prices have shot through the roof, and are often ridiculously high. They show no signs of leveling off.
With a new drug coming out almost weekly, it’s just another reason they give themselves to believe that they need to make things, that aren’t worth that much, worth more.
In 2000, 30% of America’s entire workforce was made up of freelance, independent contractors and temporary employees. Estimates say that by 2013 that percentage will go up to 41%. If we are to find a way for small businesses to find a concrete solution for their healthcare insurance situation, we need to find it now. Small businesses account for nearly 60% of the 44 - 45 million uninsured Americans.
Large businesses have the advantage of having a broad pool of employees where one worker’s medical expenses do not usually have a noticeable effect. This is where small businesses have the most trouble, because they lack the size of other establishments and the large pool of employees they have. Any cost in a small business, especially medical cost, may have the potential to cut deep.
If the pharmaceutical world is dealt with or deals with itself over its high costs, that may lower insurance costs and make a much clearer path to a reasonable coverage plan.
Another healthcare topic that still has things jumbled up is the variety of restrictions that different states have for raising rates. While some states cannot raise rates on the basis of a person’s health, the majority of the states can use that as a basis within limits. There are a few states, however, where there are no restrictions or limits on how much the rates can be raised. These states include Virginia, Pennsylvania, Maryland and the District of Columbia.
There are options out there, but the real question crossing everyone’s mind is how long will those options that are barely making it by now last before we need more?