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Small businesses struggle with health insurance premiums

If you’re self-employed, good luck finding affordable healthcare coverage.

Thanks to bumpy rate increases and stricter underwriting criteria, the number of uninsured working-age Americans should easily surpass the 27-million mark this year. More than half are entrepreneurs.

For a healthy middle-aged small business owner and his spouse, insurance through major healthcare providers starts in the $700 range and up per month, depending on the deductible. Some organizations, like chambers of commerce, provide a discount insurance program with a paid membership, but the savings are virtually eliminated when figuring in annual dues and mandatory life insurance. Sadly, slim profit margins spurred by global competition make healthcare coverage a luxury for many entrepreneurs, and represents a budget item that can be crossed off the list as other necessities take priority.

Joining an association doesn’t necessarily provide access to affordable healthcare. As the price of premiums continues to increase across the board, healthier members eventually opt for private insurance, leaving the provider with a costly pool of mostly older, less healthy members.

Creating an association won’t help, either. Some providers no longer have an interest in even providing quotes. Picky underwriters require proof that people covered under the plan are full-time employees, and demand quarterly reports and other documentation.

“(The) dilemma is one of the very reasons small business health plans (formerly referred to as AHPs) are so important,” said Ron Aldridge, state director of the National Federation of Independent Businesses (NFIB). “Until we can get them through Congress, small businesses will always pay higher premiums than larger businesses, including government.”

Because many small business owners deny themselves health insurance, they don’t provide it for their employees. Less than half of small businesses with nine or fewer workers offer health benefits, compared to 72% of companies with 10 to 24 workers, 87% of firms with 25 to 49 workers, and more than 90% of firms with 50 or more employees, according to a survey by the Kaiser Family Foundation and the Health Research and Educational Trust.

Sixty-five percent of small business owners indicate high cost as the main reason why they do not offer health insurance, according to the NFIB Research Foundation.

Consider this: health insurance premiums for a family of four now average nearly $11,000 a year, an amount equal to the annual pay of a full-time minimum wage worker. It’s not surprising that companies with a relatively high percentage of lower-wage workers are less likely to offer health insurance, given the cost of coverage relative to what their workers earn. Nor is it surprising that smaller firms, who on average pay their workers less than larger firms, are having an increasingly difficult time offering health benefits to their workers.

“It’s low-wage workers who are being hurt the most by the steady drip, drip, drip of coverage draining out of the employer-based health insurance system,” said Kaiser Family Foundation CEO Drew Altman, Ph.D.

In the last five years, the percentage of all firms offering health benefits to their workers has dropped from 69% to 60%. In October 2005, the Economic Policy Institute released a briefing paper that showed from 2000 to 2004, Mississippi experienced a 5.7% decline (58% to 52.3%) of employers who offer health coverage. During the same time, there’s been a movement toward high deductible health plans (HDHP). Twenty percent of companies that offer health benefits provide HDHP.

“We’ve all heard the buzz word ‘consumer-driven healthcare,’” said Jim Miller, vice president of Southern Administrators and Benefit Consultants, a benefit service provider specializing in flexible benefit cafeteria plans. “We’re putting the individual back in the driver’s seat, making consumers better shoppers.”

When employers do provide health insurance, it’s certainly no longer free. Nearly 80% of covered workers with single coverage, and more than 90% of covered workers with family coverage made a contribution toward premiums in 2005. On average, employees contribute $610 of the $4,024 annual cost of single coverage and $2,713 of the $10,880 annual cost of family coverage. Covered workers in firms with less than 200 employees make a significantly higher contribution toward family coverage than coverage workers in companies with 200 or more employees.

There’s some status quo. Over the last several years, the average percentage of premiums paid by workers has unchanged statistically: 16% for single coverage and 26% for family coverage.

“A lot of self-employed people are doing health savings accounts, though Mississippi has been a little slow getting in,” said Miller.

Some good industry news: the rate of growth of health insurance premiums declined for the second consecutive year, slowing to 9.2% in 2005, lower than the 11.2% increase in 2004, and the 13.9% increase in 2003. However, premiums continued to increase faster than the overall inflation and wage gains. In the last five years, premiums for family coverage have increased by 73%.

The Mississippi Insurance Department (MID) is warning small business owners anxious to buy some type of inexpensive health coverage not to be lured by companies selling cut-rate insurance plans. They often market by fax or e-mail. “They’re not dangerous, they just aren’t viable plans,” said MID spokesperson Donna Cromeans.

There’s one bright spot: President George W. Bush recently proposed allowing self-employed Americans to pre-tax their health premium. “Then these individuals could also get the tax advantage,” said Miller.

Contact MBJ contributing writer Lynne W. Jeter at Lynne.Jeter@gmail.com.


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