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Small-Business Owners Struggle As They Try To Keep Up With Health Care Costs

DIANE LEVICK

July 27, 2009

Small-business owner Steven Hyman is steaming about a health plan he calls "morally outrageous" because of a 17 percent increase in premiums July 1 — more than 60 percent over two years — new co-payments and repeated fights over claims.

The premiums for him and his family — the only ones on the group policy right now — have jumped to $1,177 a month, and together with a $5,000 annual deductible, they eat away about 20 percent of the annual revenues at his small money management firm in Bloomfield.

"It's absolutely insane," said Hyman, who runs Creative Funding Corp. "It's absolutely unbelievable to pay $20,000 and then you pay co-pays."

His frustration and fears about how long he can afford insurance are echoed by other small businesses in Connecticut and throughout the nation as their premiums skyrocket while insurers blame rising medical costs.

Premiums for small employers have been rising by double-digit increases for a few years, and they don't have the negotiating power of larger employers.

This year's increases are a bit higher on average, ranging from 8 percent to 21 percent but topping 40 percent for some employers, and they're coming at the worst time, during a recession, benefits brokers say.

As a result, small businesses are taking dramatic or drastic steps that affect workers, in some cases dropping coverage altogether.

They don't have the luxury of waiting for health care reform and its politically uncertain future, but they're praying it will eventually help them.

Some small businesses are switching to new plans that shift more medical costs to employees, often requiring them to pay a larger portion of premiums. Some business owners are leaving the group insurance market and buying cheaper individual policies for themselves and sometimes employees if health problems don't disqualify them.

Ironically, Connecticut and some other states are seeing a double whammy on rates from 1990s legislation meant to protect employers of up to 50 workers.

The law prohibits insurers from basing the employer's premiums on the past claims of its own workforce. But insurers can use age and other factors, so sharp across-the-board rate increases are combining with automatic increases as employees pass into higher age brackets, especially steep at age 50 and up.

The result is premium jumps as high as 30 percent to 45 percent this year for some employers, Connecticut brokers say. That's bad news when the average premium for family coverage for U.S. employers of 3 to 199 employees had already reached $12,091 by last year, up from $6,521 in 2000, according to a survey by the Kaiser Family Foundation and Health Research & Educational Trust.

The raging rates have turned some small employers into activists, like Kevin Galvin, owner of Connecticut Commercial Maintenance, a handyman business in West Hartford, who is now chairman of Small Business for Health Reform.

He bought insurance for his employees for the first time three years ago, but had to drop it after a year because premiums rose 26 percent.

"There's drama every day around health care; that's why I went nuclear on it," Galvin said. "I realized small business had positively no voice in the process."

Tomtec Inc. of Hamden, which makes bioanalytical equipment used in labs, faced a 46 percent premium increase from Anthem Blue Cross and Blue Shield this year that would have raised the firm's total annual premiums to $441,000. Tomtec switched to another insurer, but the cost is still about $30,000 more than it was paying.

"Insurance companies are now part of the Mafia," said an embittered Luis Ramos, Tomtec's general manager. "They are trying to get rich before Obama passes anything."

Aetna's small-employer rates are rising 9 percent to 14 percent, on average, in Connecticut, excluding age-related increases, because "we're always pricing to our medical trends," said Dale Cook, president of the company's small group business in the Northeast. "I don't think, as an organization, Aetna's profit margins are anything exorbitant."

Insurers are only required to file small-employer HMOrates with the Connecticut Insurance Department — they averaged 10 percent to 13 percent last year — but the department doesn't track rates for PPOs (preferred provider organizations) and other plans.

Connecticut brokers say Anthem's premium increases on various plans are among the largest here.

Anthem, which is taking heat for proposed rate increases as high as 32 percent on its individual market policies, said its increases on small employer policies also reflect rising medical costs, including pricey prescriptions and medical technology, such as imaging.

Jim Augur, vice president of sales for Anthem in Connecticut, also cites the continued cost-shifting to private insurance by Medicare and Medicaid, which doctors say provide them with inadequate reimbursement.

Augur acknowledges that Anthem's premium increases could burden employers.

"It absolutely is a concern for all of us as we try and deal with this affordability issue," he said. "We continue to try to offer alternative products for the member and the employer to think about."

Anthem's rate increases, excluding the effect of age-bracket increases, have averaged 12.5 percent a year over the past two years on small employer HMOs, 11.3 percent on PPOs and 21.2 percent on Lumenos "consumer directed" health plans, Augur said.

The rates on Lumenos plans, which combine an account to pay medical bills with a high-deductible insurance policy, are rising an average of 25 percent this year. One of the problems, Augur said, is that many employers funded the entire deductible for employees. That takes away their incentive to be choosy health care consumers and triggers the insurance sooner, he said.

Lumenos is also causing headaches for members like Hyman because it began imposing prescription co-pays for the first time on July 1 in the $10 to $40 range.

"It's like piling on," coming along with big rate increases, said Bob Feen, president of The Benefits Group in Cheshire. His own firm shouldered a 34 percent increase from Anthem on Jan. 1, about half of it due to age changes, but couldn't find anything cheaper.

Augur pointed out that other insurers already charged drug co-pays and Anthem added them to encourage members to get less expensive drugs, including generics.