Small business succumbs to soaring healthcare costs

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.

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.

Table 1 the cost of coverage

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.

"I try to hire people who have husbands with health insurance," St. Clair says. "I try to keep our fees reasonable, so it's too hard to run a practice and pay for staff insurance, and that has a big impact on hiring people."

Pending legislation

Veterinarians might have a reprieve on the horizon if association health plans (AHPs) find approval in the U.S. Senate. AHPs would allow small businesses to pool their employees through associations in an effort to negotiate lower premiums as a group.

While large corporations and unions can secure lower rates from healthcare providers because of their critical mass, a smaller network, such as those at a practice, are devoid of the purchasing power that might yield lower premiums. Though the American Veterinary Medical Association (AVMA) offers its members health coverage via GHLIT, state laws prevent non-veterinary staff employed by AVMA member veterinarians from qualifying for health or life coverage.

AHPs would allow members to pool buying power at the national level, whether through the AVMA, Small Business Administration or any other bona fide association where an employer might belong.

"It seems like a reasonable idea, and it seems like a defensible idea," says Dr. Anthony J. DeCarlo, owner of Red Bank Veterinary Hospital in Red Bank, N.J. which supports 243 employees with health benefits. "Going forward, all of us need to rethink how we are going to balance these costs because giving benefits to people is easy; taking it away is almost impossible."

Health premiums for paraprofessionals at the Red Bank Veterinary Hospital rose 20 percent in 2003, then another 20 percent in 2004. Though DeCarlo says it's a challenge to keep pace with the run on healthcare costs, it provides a competitive advantage as an employer.

"The competition is pretty fierce for getting good people. If you want to get good people, then you have to offer certain incentives," he says. "If you can attract good workers because of health insurance, then your business runs better; if your business runs better, then you improve your revenue."

An AHP bill passed in the house earlier this year, and its bicameral counterpart, (S.545) The Small Business Health Fairness Act, has been languishing in committee since last year.

"S.545 is going to offer trade groups that are representing DVMs the opportunity to create new health plans that can draw into a single pool of veterinarians potentially from every state in the union," says Craig Orfield, communications director for the Senate Committee on Small Business and Entrepreneurship. The committee's chair, Sen. Olympia Snowe, R-Maine, introduced S.545 in 2003.

AHPs could save small business about 25 percent to 30 percent due to possible purchasing power, according to a preliminary assessment by the Congressional Budget Office. More than 130 trade associations, including the AVMA, support The Small Business Health Fairness Act.

"Although associations can offer plans, as the AVMA does with the Group Health Life Insurance Trust, there are seven states in which veterinarians cannot buy into it because of state law," says Dr. Raymond Stock, assistant director of the AVMA's Governmental Relations Division.

State laws in Maine, Massachusetts, New Hampshire, New Jersey, North Dakota, Vermont and Washington prohibit GHLIT from providing health insurance to AVMA members, but veterinarians can organize under their respective state associations. A national standard potentially can pool the about 60,000 U.S. veterinarians to garner better insurance rates vs. the couple thousand members that each state association can negotiate for.

"It will allow a national format that will eliminate the 50 different sets of state rules and regulations, in which seven states can prevent residents in their states from purchasing a policy that is run by an association," Stock says. "The House bill has been passed twice by this Congress, and S.545 is in committee and likely will stay there this year because it's not expected to pass during the lame-duck session."