SMALL BUSINESS: Sees Steep Increases In Health Premiums
Small businesses in California and nationwide that buy health insurance for their employees are facing "steeper increases than larger firms," leaving them "with the tough choice of either cutting employees benefits or watching monthly expenses soar." According to a study this year by KPMG Peat Marwick, companies on average are preparing for 6% increases next year. But small businesses will "face rates that are about 30% higher than what large companies pay for equivalent plans," according to the National Federation of Independent Businesses. The San Francisco Chronicle notes that a recent survey found that "rising health costs is the single biggest worry for business owners." One small business owner in San Francisco said, "We've seen increases before, but this is ridiculous. We're running out of options."
The Chronicle reports that managed care plans say they have to raise their rates because of "higher administrative expenses" and the demand for "trendy prescription drugs like Claritin and Viagra." Anthem Health Care & Life Insurance Co., which provides health insurance for small businesses in California, said that "[o]ne reason for this disparity is that insurance agents receive higher commissions for small company accounts than they do for large company accounts" because small companies "bring in less revenues." John Bertko, an analyst with Berkely-based Reden & Anders, said "providers also charge small companies higher premiums because they represent a statistically bigger risk." Many small companies who employ young and healthy workers do not buy health insurance. This leaves the pool of small business accounts leaning "toward older employees who are more likely to have expensive illnesses," notes Bertko. Another reason for small business' higher rates is that they "are less predictable due to the small number of employees" and tend to have a higher job-turnover rate. "Because they're less easy to predict than a large company with many employees, providers are going to err on the side of conservatism because they need to protect themselves against worst-case scenarios," said Anthem Vice President Rich Phillips.
Other small business owners contend they get stuck with high rates because they do not have the negotiating clout that larger businesses do. But Dean Kemp, Kaiser Permanente's small business manager, said, "The idea that we charge small companies higher rates because they can't negotiate is just wrong." However, small business advocates believe if their purchasing power were pooled, they would see less expensive rate hikes. A bill "strongly backed" by U.S. House Republicans would allow small businesses to "join forces" across state lines to pool together. The measure, sponsored by U.S. Rep. Dennis Hastert (R-IL), has passed the House and is "awaiting a vote in the Senate" (Doan, 8/15).