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Many owners decreasing labor costs to offset premium increases

Businesses coping with higher rates often choose ‘Plan B’

Some Mississippi businesses are taking radical steps to cope with escalating insurance rate increases in health care, business liability and workers’ compensation premiums for 2003.

“I’ve received more calls from members this year than any previous year asking me for help in finding affordable insurance from two standpoints: one, the availability aspect, because several carriers, including mine, have left Mississippi, and two, the affordability for themselves and their employees,” said Ron Aldridge, state director for the National Federation of Independent Businesses. “We’ve been dealing with double-digit increases every year, and one owner recently told me, ‘I’m now paying out more in insurance than I receive from my little small business. I’m beginning to wonder who I’m really working for.’”

Mississippi Insurance Commissioner George Dale said health insurance rates have been escalating for several years.

“Of course, we say we’re not for socialized medicine — I’m sure not for it — but if you stop and look at the people who take out their own insurance, you’ll see that we clearly have a problem,” said Dale. “If you’re old enough, you’re on Medicare. If you’re poor enough, you’re on Medicaid. If you’re young enough, there’s CHIPS (the federally and state funded children’s health insurance program). That leaves less and less people to buy ‘free enterprise health insurance’ yet it’s a major part of the budget.”

The whole insurance system is in chaos right now, Dale said.

“I just got back last (month) from meeting with insurance commissioners from nine southeastern states and the subject most discussed was the problem with homeowner’s and health insurance,” he said. “Some states are not affected as much by escalating cost and liability as Mississippi and a few other states, probably because that part relates to the civil justice system, even post-tort reform.”

Most businesses are really getting banged up right now, said Rex Haynes of Brown & Haynes Insurance in Southaven.

“Not only are their group insurance premiums rising by double digits, their property and liability insurance is also increasing 10% to 20%,” he said. “The property and liability prices will level off, but the group medical insurance costs will continue to increase. I have seen projections that those costs will double in the next five years.

“My observation is that most employees don’t know how much their employer is spending to provide the group insurance, therefore the employee really doesn’t appreciate the value of the benefit. I think employers need to do a better job informing the employees of the costs involved.”

Some employers will be able to offer more than one level of medical benefit, Haynes said.

“A basic benefit plan will be provided for all employees,” he said. “If an employee wants to pay the difference to upgrade to a better benefit, they can choose to do that. No doubt we will see higher deductibles and we will see employees’ portions of the premium rise.”

A recent NFIB monthly member survey showed that insurance cost is the second most important problem for small businesses, right behind taxes, and has become a bigger threat than labor cost, said Aldridge.

“Through the surveys, we’re seeing that small businesses are not raising prices on products or services to offset rising insurance costs,” said Aldridge. “Instead, they’re cutting back on labor cost. Companies are paying key employees more, letting go of weaker employees, and filling in with temporary help, especially since there’s such a labor pool. About 80% of the people we survey said finding qualified or skilled workers is a major problem.”

Staffing service owners are finding themselves in quite a dilemma. While their business is increasing, so is their insurance, and in a competitive market, they can’t afford to increase their rates.

“Our insurance, mainly workers’ compensation but also general liability and employee practice liability, all went up, especially after 9/11,” said Mark Smith, president of The CPI Group in Columbus. “Right now, the staffing service business is so competitive that we can’t afford to pass on a lot of the cost to the client. We have to absorb increases and take a little hit on our profit margins, which aren’t very high. Typically, the staffing industry average is 4% to 8%.”

Mike Cashion, executive director of the Mississippi Restaurant Association (MRA), said restaurateurs are seeing rate increases of 30% and up on typical restaurant property/casualty accounts.

“This is on top of 30% to 40% increases they took last year,” he said. “Members in rural areas are having a difficult time finding insurance at all. The same holds true for health insurance. What few carriers are left have adopted tougher underwriting standards and have passed on significant rate increases as well. Most restaurants are unable to afford any type of coverage for employees.”

Restaurant owners are raising menu prices to offset rising insurance costs, said Cashion. “Increases in insurance premiums to business are stifling our economy,” he said. “Business is hard pressed to expand and hire new employees when their insurance premiums are escalating.”

The only bright spot is MRA’s Workers’ Compensation Insurance Trust, said Cashion.

“Its rates have never been raised in the 12 years of its existence,” he said. “The Trust is now insuring some $200 million in Mississippi payroll with annual premiums approaching $5 million. It has returned $4.8 million in premiums to its members over the last five years and will return another $500,000 next year.”

Many companies are choosing which insurance they can drop or reduce, said Aldridge.

“The law requires workers’ compensation insurance for employers with five or more employees, but business liability insurance is not required, so some employers are dropping it,” he said.

Relief may be in sight for small business owners if Congress passes the U.S. Labor Department-backed associations health plans, which would be exempt from state health insurance mandates and regulations and increase the purchasing power derived by pooling thousands of small businesses into one plan, said Aldridge.

“NFIB has a policy that members can buy into, but it’s a policy very similar to other products on the market,” he said. “That’s one of the reasons we’re trying to get the associations health plans through Congress, and with the change in leadership up there, we anticipate that happening in the very near future. If we get that passed, NFIB and other associations can go to health insurance companies and get the best plan available at the best rate. That will help make it much more affordable and actually have more benefits than people can get now through a regular market plan.”

Contact MBJ contributing writer Lynne W. Jeter at (800) 993-3392 or lwjeter@yahoo.com</a.

About Lynne W. Jeter

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