As health premiums rise, small businesses seek alternatives

NEW YORK -- Small businesses are getting notices about their premium and coverage changes for 2018, and some are making adjustments because of that.

The changes vary depending on the state where a company is, how many employees it has and how comprehensive its insurance is. But many owners are facing rate increases of double-digit percentages or dramatically reduced coverage -- or both.

Health-insurance consultants expect more owners to rethink their strategies beyond 2018 and choose alternatives such as paying for claims themselves or adding health services that can lower costs.

Workshop Digital's premiums are soaring 55 percent, and co-founder Brian Forrester said the business will be less profitable as it absorbs that. He may have to ask the Richmond, Virginia-based marketing agency's staffers to pay more for coverage in the future.

As small-business owners learn what their 2018 health insurance costs will be, some are considering providing different types of coverage for their employees.

Gail Trauco's insurer is eliminating her company's policy known as a preferred provider organization, or PPO, replacing it with a health-maintenance organization, or HMO, a change that would limit the choice of doctors for her five employees. Her annual costs were scheduled to rise nearly $10,000 in 2018.

The HMO was a deal-breaker, said Trauco, owner of The PharmaKon, which helps coordinate clinical drug trials.

"It's important for a patient to choose a physician they can have a good relationship with," said Trauco, whose business is based in Barnesville, Georgia. Trauco hired a health insurance broker who helped her find a PPO with a different carrier, and she's saving enough money to add dental coverage.

Some owners said they may not be able to keep shielding their staffers from rising health costs.

Workshop Digital pays 83 percent of medical insurance, 90 percent of vision care and 52 percent of dental coverage.

"We never plan on removing our coverage or reducing the type of coverage we offer, but the out-of-pocket costs for our team may have to go up over time," Forrester said.

Under the Affordable Care Act, companies with fewer than 50 employees aren't required to offer insurance, but many do because they feel it's right or because it helps them compete for and retain top workers.

Fifty percent of companies with three to 49 workers have offered health benefits this year, according to the Kaiser Family Foundation, which studies health-care trends. That compares with 53 percent of all employers, and is little changed from the previous three years.

James Bernstein, an executive at benefits consulting firm Mercer, said many offer employees a choice of plans to serve staffers' needs but keep their own costs in line.

"What they're saying is, a one-plan-fits-all strategy does not work, especially with a multigenerational workforce: millennials, young families, baby boomers," Bernstein said.

A Mercer survey found many small businesses are considering coverage that has a higher deductible and in turn, lower premiums. These plans shift more costs to employees, but many owners contribute money to Health Savings Accounts, or HSAs, to help staffers pay medical expenses.

The combination of a high-deductible plan and an HSA is known as a consumer-driven health plan, because it allows people to determine where they spend their health dollars.

Mercer found about a fifth of companies with 50 to 199 employees and 37 percent of companies with 200 to 499 workers plan to offer consumer-driven plans as a choice in the next three years. Those with 10 to 49 workers are less inclined to do so; only 10 percent said they will offer one.

Employers' health-care costs have been rising for decades, not only since the ACA mandated minimum levels of insurance coverage in 2014.

Health-care costs at W.H. Christian soared between 150 percent and 180 percent over nine years, said Scott Christian, director of operations for the New York-based company that sells and rents work uniforms.

W.H. Christian ended the spiral last year, switching to what's called self-funded coverage for its 72 staffers. In self-funding, a company sets aside money to pay employees' claims rather than have an insurer do so. It buys stop-loss insurance or reinsurance to pay claims in case employees submit more claims than expected.

Money was just one factor in the change, Scott Christian said. The company saw the quality of its coverage declining, with doctor networks shrinking; it kept switching carriers in hopes of better coverage, but each renewal offer was a disappointment.

"The main driver was we wanted to give our employees a good plan," Christian said. "That seemed more and more impossible to provide given where the health insurance universe was going."

The number of small businesses that self-fund is small -- 15 percent of workers covered by insurance are in self-funded plans, versus 79 percent in large companies, according to the Kaiser foundation.

Self-funding can be particularly beneficial for a company with a young and healthy staff, said Craig Scurato, a vice president with Leslie Saunders, an insurance and benefits broker based in Lutz, Florida.

Scurato also sees a growing interest in nontraditional medical services such as direct primary care practices, doctor's offices that provide medical services including examinations and laboratory testing. The company pays a flat fee per month; insurance companies are not involved.

Midwest Scrap Management was interested in health services that would help it save money when it switched to self-funding in March -- one of the plan's appeals was the metal processor would have more say over what its coverage would include, chief financial officer Craig Ward said.

The Kansas City, Missouri-based company offers its 120 employees 24/7 access to telemedicine, allowing them to consult with clinicians and get advice and prescriptions when they don't feel well. It costs less than office visits.

Midwest Scrap Management also offers biometric screening, which among other things measures cholesterol and blood sugar levels, letting staffers know whether there's a problem.

The company has saved $20,000 off its projected health-care costs since it switched, Ward said. And because an insurer no longer is in charge, there's no mystery about where the company's money is going.

"When you get a renewal every year from a traditional carrier, they tell you what your rate increase will be, but you never get a reason why," Ward said.