Seeking Affordable Health Care Taxes Many a Firm’s Ingenuity
When Brad Roller, president and founder of Swiger Coil Systems, a Cleveland electric motor parts maker, spoke up about the high cost of health insurance for his employees, he quickly found himself in charge of a plan to help small businesses get affordable coverage.
That was nine years ago. Today, as insurance chairman for the Cleveland Chamber of Commerce’s Council of Smaller Enterprises, Roller is still fighting that fight.
And Cleveland is serving as a model for other communities where small-business owners are grappling with the exorbitant costs of providing health insurance to their workers. Serious talk of state and federal health-insurance mandates have sent a chill through small businesses generally. Many business owners attending a small-business retreat in Palm Springs this month said they would be forced to lay off workers if they had to provide health insurance for everyone.
The current crisis was precipitated by skyrocketing health-care costs, which have been increasing at about 15% a year. As premiums rose and insurance companies became more selective in offering coverage, more and more small-business owners found themselves squeezed out of the affordable insurance market.
Some politicians, especially Sen. Edward M. Kennedy (D-Mass.), point to the shocking fact that between 31 million and 37 million Americans have no health insurance.
The desperate need for affordable health insurance was the major issue tackled at the Palm Springs conference, sponsored by National Small Business United, a Washington-based grass-roots group of small-business owners. One afternoon, representatives from the medical profession, hospitals, small-business organizations, government agencies and insurance industry associations grappled with the complex challenge of providing affordable coverage.
“The insurance industry knows it can’t be business-as-usual anymore,” James Dorsch, Washington counsel for the Health Insurance Assn. of America, told the group. In response to the crisis, he predicted, the 1990s will be the decade when insurance companies become “health-care managers instead of just paying the bills.”
Roller said Cleveland’s quest for affordable insurance for small businesses began in 1974, when small-business owners organized themselves into a single group for coverage purposes and asked Blue Cross, the giant insurance provider, to offer them a discount on premiums. Blue Cross agreed to a 10% discount, but by 1981 rising premiums were eating away at the discount and Roller was back in the fray.
“We had to do something,” Roller said. “Cleveland was the fourth most expensive city in the U.S. for health care.”
Today, 7,000 small and medium-sized companies participate in 14 different plans, primarily with Blue Cross but with other insurance providers as well. The plans cover 125,000 small-business employees and their dependents, who paid $115 million in premiums last year.
“We save our members an incredible amount of money,” said Roller, who frequently is called upon to explain the program to other small-business leaders.
“What we are doing in Cleveland could be done by a significant number of small companies across the country,” he said.
In California, Gov. George Deukmejian recently jolted business owners by outlining a plan that would require all employers to provide some kind of health-care coverage to workers.
“Everyone will have to pitch in and give a little to make health care affordable and available,” the state’s insurance commissioner, Roxani Gillespie, told the gathering. “Employers will have to provide insurance or pick up the costs.”
Linda Diamond, director of the American Medical Assn.’s private sector outreach, said the AMA is seeking to reduce rates for malpractice insurance because the premiums can increase a patient’s bill by about 15%. She said doctors now tend to order more tests before making a diagnosis because they are forced to practice “defensive medicine.”
After the session, several business owners said they plan to take the initiative in solving the insurance problem before the government steps in.
Business owners are being pressed to seek creative alternatives, including self-insurance programs designed to cut costs.
One Los Angeles firm founded by a former executive at a major insurance company sets up custom-tailored insurance programs for companies with 50 to 500 employees.
“We design partially limited, self-funded insurance plans which allow small companies to do what the Fortune 500 companies have been doing for years,” said Robert Turell, founder and chairman of Insurance Design Associates.
Turell said a self-funded plan can save a company between 15% and 20% on its insurance costs.
It works like this: The company agrees to pay the everyday costs of providing health-care services for its employees--within certain limits. Then it buys reinsurance to cover more expensive and catastrophic claims.
“The employee gets the same benefits he had before, but in this way a firm can have tailor-made coverage and control the costs,” Turell said. He has set up about 100 custom insurance plans in the last 3 1/2 years.
He said companies also can save on administrative costs.
Unlike an insurance company, which charges fees based on a percentage of total claims paid, a benefits administrator usually charges about $10 a month per employee to manage an insurance program. Turell, who has several major law firms as clients, said one company with 250 employees saved about $150,000 a year by partially self-insuring.
