Small business succumbs to soaring healthcare costs

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Dec 01, 2004

Small businesses are crumbling under the stress of human healthcare inflation. Four consecutive years of double-digit hikes have forced many practices to drop healthcare benefits or postpone hiring staff in lieu dropping coverage for current employees.

Just 63 percent of small firms—three to 199 workers—offered health benefits in 2004, down from 68 percent in 2001, according to the Kaiser Family Foundation. Nationally, that translates into 5 million fewer jobs that provide healthcare benefits.

Considering that the country's 23 million small businesses comprise 99 percent of all employers and contribute 75 percent of new jobs, according to the U.S. House of Representative Small Business Committee, the loss of healthcare coverage will be difficult to recoup in the short term.

About 60 percent of the country's 45 million uninsured either work for a small business or belong to a household whose head works for a small business, according to the U.S. Senate Committee on Small Business.


Table 1 the cost of coverage
Healthcare costs are rising at a higher rate for small businesses, too. Though premiums rose 13.9 percent in 2003 on average for all employers, healthcare premiums grew 15.5 percent for small businesses, according to the Kaiser Family Foundation Employer Benefits Survey. Premiums rose 11.5 percent for small business in 2004 compared with the average 11.2-percent hike nationally.

Costs spiral for DVMs But they are growing much faster than the national average for many veterinarians.

"We've had a 40-percent increase in premiums this past year across the board; we went from $190 (per month, per employee) to $270," says Todd Marcum, DVM, proprietor of nine corporate hospitals that fly the Banfield, The Pet Hospital flag.

2004 premiums average $308 per month for single coverage and $829 each month for a family plan, according to Kaiser. Premium burdens have escalated 59 percent since 2000.

"Benefits were 25 percent of our gross wage, and that has gone up to about 29 percent, so we essentially have netted 4 percent less because of healthcare increases," Marcum says. "That's going to be passed on to the consumer over time; there is no other way for a business person to absorb that cost."

Marcum employs about 15 to 20 associates and about 80 paraprofessionals. He and his partners agree that offering health benefits is a successful way of recruiting and retaining the best-possible employees the area has to offer, and though healthcare costs inevitably will be passed to clients via price increases, staff education about the pricing increases can create buy-in from all levels.

"There is no magical funding, so we wanted to let the staff know that the price increases were needed to pay for the increase in their healthcare premiums, and hopefully we can continue to do that," says Dr. Beverly Porter, one of Marcum's partners in Lexington, Ky. "The candor helped them to be more conscientious about products and services in the hospital. They realized that practicing quality medicine impacts their life in a very personal way, and they could impact their compensation package by doing their best and offering the products and services that are in the best interests of the clients."

Insurance premiums for employees at Porter's practice grew 50 percent in 2004, up to $300 from $200 last year. Despite the price increases at the practice, she says it's an expense worth having.

"Health benefits are absolutely critical; we have a much better success in retaining trained, good team members," Porter says. "It makes them feel valued when you take care of them in ways besides a salary, and I would hazard to guess that they would not be able to afford insurance on their own."

For many small businesses, the healthcare hurdle is too high to clear. Dr. Joseph St. Clair, proprietor of the Meriden Animal Hospital in Meriden, Conn., runs a two-doctor practice with six supporters. He says his local carrier, Mutual of Omaha, beat the Group Health Life Investment Trust (GHLIT) rates administered by the AVMA, but he can't rationalize the expense for his paraprofessionals.