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Small Businesses Grapple With Rising Costs of Employee Health Insurance

Posted on: Sunday, 19 February 2006, 12:00 CST

By Jeff DeMoss, Standard-Examiner, Ogden, Utah

Feb. 19--OGDEN -- The rising cost of providing employees with health-care benefits has become a problem that threatens the viability of some of America's largest companies, and the pressure can be even more intense for small businesses.

Local employers, facing skyrocketing costs, are being forced to charge their employees more for health insurance. Some are reducing or eliminating health benefits altogether.

Janice Hoggan, controller for Ogden-based mechanical contracting firm Kozco Inc., said the company's health-care costs are going up about 15 percent every year.

"People are leaving our plan because of the cost," she said. "It's not just taking a bigger slice of the pie -- it's eating all the pie."

In response, an increasing number of local businesses are pushing for a way to buy into the state Public Employees Health Plan, a move they say would help mitigate rising costs by spreading health risks across a larger pool of people.

There are currently between 270,000 and 300,000 Utahns without health insurance, according to the Utah Insurance Department. Costs for health-care coverage are growing at an annual rate of between 10 percent and 15 percent -- four to five times the overall inflation rate.

By comparison, average U.S. wages rose 3.1 percent last year, according to the Labor Department. When adjusted for inflation, wages fell 0.3 percent.

"When we examine this issue, one thing becomes very clear -- the health-care delivery system in the United States, including health-care finance, is a mess," said D. Kent Michie, commissioner of the Utah Insurance Department, during a recent meeting with members of the Ogden/Weber Chamber of Commerce.

Skyrocketing health care costs are impeding the ability of American companies to compete in the world economy, a trend that does not bode well for the country's future, Michie said.

"This is one of the things that could sink us," Michie said. "We're in a global economy now, and this issue is affecting the very competitiveness of the U.S. in the global marketplace. It starts to eat into the very fabric of American business."

He said health insurance for the typical Utah family, purchasing their own coverage, will cost about $12,000 this year -- $1,300 more than a person working for minimum wage makes annually.

"Some people wouldn't be able to pay that much, even if they had no other expenses," he said.

A bill before the state Legislature could result in a new system allowing private employers to buy in to the state Public Employees Health Plan.

HB 122, sponsored by Steve Mascaro, R-West Jordan, would create an advisory council charged with designing a system that would allow Utah businesses with two to 50 employees to buy into a newly established health insurance pool. The pool would be separate from that of state employees, and would be funded entirely by participating businesses and their employees.

While the original bill called for the creation of a specific plan, a substitute bill before the House merely calls for the appointment of a council charged with devising a plan. Central to that will be determining whether the plan should be administered by PEHP or a private partner.

The substitute bill came about after insurance-industry representatives raised concerns that businesses would abandon their existing health plans in favor of the new plan, which would likely be significantly less expensive than existing options.

A "look-back period" that would require employees to wait a designated period of time before joining the plan would prevent such a mass exodus, said Joseph Jarvis, president of the nonprofit, Salt Lake City-based Utah Alliance for Health Policy Solutions.

Jarvis said commercial insurance customers end up paying about 15 percent of the total costs on their claims, compared to less than 4 percent for PEHP participants.

While some are concerned about putting the state on the hook as an insurance company for private employers, the overall benefits would far outweigh the risks, Jarvis said. A survey of 200 small businesses found that the average participant in the new pool would be 10 years younger than the average PEHP beneficiary.

"It's more likely that this plan would reduce costs to the Utah taxpayer," he said. "PEHP has about a dozen different risk pools. The fact that they manage to keep all those in order and manage risks separately speaks volumes about our ability to add another risk pool without putting others in jeopardy."

Penny Kapp of Ogden-based Kapp Construction said the company would like to have access to a group plan that covers workers with health problems that are not life threatening. A statewide pool would achieve that, Jarvis said.

"Under this plan, you couldn't be charged more because of a medical condition," he said. "Rather than cherry picking for the lowest-risk customers, this plan would try to manage the total risk to all customers."

He estimated that about 20 percent of Utah's 125,000 small business employees have lost health coverage since 2000.

The issue is critical to the bottom lines of small businesses because employee health care represents about 16 percent of the average Utah company's total costs, Michie said.

"It puts a particular crunch on small businesses," Michie said. "When you have a small group, a big event has a greater impact on everyone."

While opinions vary on how to solve the health-care crisis, Michie said, a general consensus exists on at least one point.

"One thing I think we can all agree on, it has to cost less than it does now."

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Source: Standard-Examiner

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