Already struggling in a tough economy, many small employers are about to face another big hit: markedly higher increases in health-insurance premiums as they head into 2009.
For many of these companies, the steeper increases couldn't come at a worse time, when the economy is weakening and credit is harder to come by.
"We can't pass these costs on to our customers; the market just won't bear it," said Daniel Lance, who owns E.CAB, a St. Petersburg, Fla., firm that produces finishes and fixtures for elevator-cab interiors.
After no increase last year, E.CAB's premiums jumped 75 percent to about $6,800 a month when its annual Blue Cross Blue Shield of Florida policy came up for renewal last month. Much of the jump was triggered by the hiring of a few older workers by the 25-employee firm, pushing it into a higher-cost actuarial bracket. E.CAB couldn't get a better price from rival insurers.
Rather than pass the cost on to his employees, who aren't required to contribute premiums for themselves though they do for family members, Mr. Lance said he's forgoing new wood-cutting equipment he had planned to purchase. "I just felt it was a bad time to pass on costs," he said. "The employees are having a tough enough time, too."
As hard as it has been for businesses to absorb ever-higher health-care costs each year, the collective premiums they paid actually had climbed at a slower rate in recent years. But as small businesses begin to receive their annual renewal notices, employers and health-insurance brokers in the South, Midwest, and California report noticeably steeper rises. Some premium increases being quoted to employers are double those quoted just a few months ago.
In a nationwide survey of 30 insurance brokers released by Citigroup in November, more said insurers were raising premiums at a faster rate than those who reported slowing increases.
For-profit health insurers have seen profit margins shrink this year in the face of higher-than-expected medical costs and pricing missteps, not to mention membership declines as more businesses drop or cut back coverage. While companies with 500 or more employees might have leverage to negotiate, health insurers are "being much more rigid" with smaller firms, said Edward Kaplan, national practice leader at Segal Co., an employee benefits consultancy.
Adding to upward pressure on prices could be dozens of not-for-profit Blue Cross and Blue Shield plans, whose investment portfolios have taken a beating in the recent market turmoil.
C. Steven Tucker, a health insurance broker for small businesses in Illinois, said his clients received increases of 28 percent to 31 percent last month, compared to typical increases of 18 percent to 20 percent. In Florida, brokers say many plans hit with high increases are high-deductible plans eligible to be used with a health savings account.
A few years ago, health insurers tried to win business with the new health savings accounts by charging low premiums, but since the most popular ones pay 100 percent of costs after a $1,500 to $3,000 deductible, their costs have been higher than anticipated.
Dottie Jessup, who owns bicycle shops in Clearwater and Palm Harbor, Fla., with her husband, Tom, said they and their 25 employees, who share premium costs 50-50, couldn't handle a 12.5 percent increase set to go into effect this month.
Instead, they went with their only other option: to raise one plan's deductible to $2,500 from $2,000 and the other to $3,500 from $2,850, in exchange for just a slight premium increase.
"Our concern is that we're getting to the point where we're wondering where this is all heading, because you can only reduce benefits and contain costs so much," she said.