Paying for health care? Less is more

Talk to just a handful of small businesses about buying health insurance over the last few years, and the narrative quickly starts to sound familiar.

It boils down to paying more and more for less and less. Oh, and passing on more of the cost to employees, who aren't exactly rolling in raises these days.

Increasingly, small businesses have given up, fueling the rise in the ranks of the uninsured and the debate in Washington about how to change health insurance so that more of us can afford it.

Consider Bob & Ron's World Wide Stereo, which has stores in Montgomeryville and Ardmore. Owner Bob Cole has been providing insurance for 31 years.

At the beginning, he said, "I paid for it 100 percent. I did their families. I did everything. Over the years, I've cut back that support because of the extraordinary expense." Cole still provides family coverage for longtime workers, but new ones pay the full cost of dependent coverage.

Over the last five years, the company's contribution for health insurance has grown from 0.7 percent of total revenue to 1.1 percent. During those years, while the overall inflation rate never rose above 4 percent, the company's health insurers - first Aetna Inc. and now HealthAmerica - came asking for rate increases of 23 percent, 27 percent, 9 percent, 20 percent, and, this year, 38 percent.

As a result, Bob & Ron's, which covers 41 employees, has reduced what its health policy covered almost every year. It switched insurers in 2008.

"Every little change you make to save a little money reduces the quality of the coverage your employees get," said Patrick Moran, director of operations, finance, and human resources.

Insurers say their prices track increases in medical costs, which are rising because of wider use of expensive technology and drugs.

While 98 percent of companies with more than 200 workers still provide insurance for employees, the percentage at smaller firms has fallen, according to the Kaiser Family Foundation. Most of that drop is in the smallest companies, those with fewer than 10 workers. In 2001, 57 percent of them provided insurance. Only 46 percent do now.

Small businesses say cost is their biggest insurance problem. According to Kaiser, small businesses actually pay slightly less per employee for insurance, but the plans often have higher deductibles. In testimony before a Senate committee, MIT economist Jonathan Gruber said small companies paid as much as 20 percent more for comparable plans because of insurers' higher marketing and administrative costs, including the cost of figuring out how to avoid insuring companies with sick employees. Small firms often pay broker commissions, which amount to 4 percent to 11 percent of premiums. Local brokers said commissions here, which are paid by insurers, were more like 4 percent to 5 percent. Some insurers plan to switch to flat fees.

Price volatility in the small-business market is what most concerns Randy Rohrbaugh, a Pennsylvania deputy insurance commissioner. Because many insurers base prices on the age and health of employees, one serious illness or a few birthdays can make a big difference in the bill.

Because insurance is about spreading the risk of a big expense, prices at larger companies are less volatile. "The smaller the population, the smaller the risk pool," said Kim Erhard, an insurance broker and consultant with Gallagher Benefit Services Inc., of Radnor. This means firms with lots of young male employees - young women cost more because they might have babies - pay less for insurance than companies full of older men and women at risk for heart disease and diabetes.

Walt Cherniak, an Aetna spokesman, said basing prices on the medical experience and age of members allowed the company to offer more affordable plans to younger groups. "We feel that it is a better way to get more groups into the system and it more accurately reflects the risk," he said.

Brett Mayfield, vice president of sales for Independence Blue Cross, said his company, which used to have the same price for everyone, had to change its methods - it now looks at age, sex, and family status - to compete. He conceded that prices based on age and medical history provide a strong incentive for employers to discriminate against older workers.

"It's a huge concern," he said. "You can't tell me that somebody doesn't look at the impact to their bottom line if they hire somebody that's slightly older."

The bills currently under discussion in Congress would allow individuals and small groups to pool together in buying exchanges. They would change the way insurers can set prices. They also would provide government subsidies to help small businesses and individuals buy insurance. Businesses above a certain size would be required to provide insurance or pay a penalty.

In the meantime, brokers and small businesses say they are seeing hefty price increases. Erhard said a third of her company's groups have had 30 percent increases this year. For about one in six, the increases were between 20 percent and 30 percent. Abbe Kligerman, who owns GetMeAHealthPlan.com, a Lafayette Hill insurance broker for small firms, said her clients were being notified of 10 percent to 40 percent increases.

Increases like that in a recession leave many businesses scrambling to find a new carrier or reduce coverage. One frustration is that businesses often cannot get a straight answer about why their bill has changed.

At Cunningham Piano Co. Inc., an old Philadelphia company that makes its own pianos and refurbishes fine pianos made by other companies, the bill actually went down 9 percent this year. Rich Galassini, one of the owners, has no idea why. It could be that the company, which has 20 employees, lost two workers in their 50s and hired one in his 30s. Or not. Whatever the reason, Galassini still plans to shop for a cheaper plan.

Meanwhile, Jan Rubin's plan, which already costs more than $900 a month per person, is going up 35 percent. Rubin, who is 57 and has some health problems, could not buy health insurance as an individual, which is one reason she provides it for her one employee. She gets her insurance through Independence Blue Cross, which does not take her health into consideration when it sets the price. Others would, so she feels stuck.

"I have no choice. I've got to pay it," said Rubin, who does real estate development and consulting.

Karen Singer, who makes custom ceramic tile for awards plaques and murals, buys insurance for herself, her son, and two staff people. It takes 10 percent of her revenue.

After many years of 10 percent increases, the company recently switched insurance companies. "It had gotten to $6,600 a quarter," said business manager Lisa Longo. "It was like, 'Oh my God. We're working for health care.' "

The way Bob & Ron's has dealt with increases is typical.

In 2005, it managed to whittle its increase to 10 percent by raising co-payments. It also chipped in more for the cost of insurance. The next year, it increased its contribution again and switched from a PPO to an HMO, again achieving a 10 percent increase. It largely accepted the 9 percent increase the following year.

In 2008, it switched carriers, increased co-pays and added a $1,000 deductible for hospitalization in the cheaper of the two plans it offered employees. It also accepted a lifetime benefits limit - $5 million - for the first time.

This year, the company cut the proposed 38 percent increase to 16 percent by eliminating the no-deductible option. Now employees choose between plans that have a $1,000 deductible or a $3,000 deductible.

A new employee in the cheapest plan now pays $75 every two weeks, up from $45 in 2005. The company has held its contribution steady for three years.

Cole is a survivor of prostate cancer who preaches to his younger employees about the importance of insurance. He thinks many of them would risk financial ruin if they did not get insurance through work. "I don't think health care falls under the rubric of things that are optional in life," he said.

The prospect of overhauled health care frightens him, but he thinks any change would be better than this, as long as members of Congress are required to use the same coverage they choose for the rest of us.

"It's hard for me not to flip when I hear people say we really don't need health reform," Cole said.

Question: I own a business. Under the proposed health-care overhaul bills, would I have to provide health insurance to my workers?

Answer: The House and Senate bills handle this issue differently, but both impose some obligation on all but the smallest employers.

Under the House bill, companies with annual payrolls above $750,000 would be required to provide insurance or pay a fee equal to 8 percent of payroll. The fees would be lower for firms with payrolls between $500,000 and $750,000; companies with payrolls smaller than $500,000 would be exempt.

Under the Senate bill, employers would not be required to provide coverage. If any of their workers got government assistance in getting insurance, however, the employers would have to pay an annual fee of $750 for each of their employees. Companies with fewer than 50 workers would be exempt.

Both bills would set requirements for what constitutes minimally adequate coverage. They are designed to prevent employers from pushing most of their premium costs onto their workers, while claiming to be providing insurance.

SOURCE: Kaiser Health NewsEndText