Rising health insurance costs hit small employers too

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Nelson Davis runs a video production company in Hollywood with six employees. He used to pay all of his workers’ health insurance premiums.

As rates continued rising -- they’ve doubled over the last few years -- Davis cut back to paying only half of healthcare costs and required workers to handle the rest.

Now he’s thinking about cutting back again and covering only 40% of the insurance premiums. And the way things are going, Davis said, he wouldn’t be surprised if his share dropped to 25%.

“You have to look at it with a cold, clear eye,” he told me. “There’s very little you can do -- either scale it back or stop offering it.”

Federal and state officials are scrutinizing Anthem Blue Cross’ planned rate hikes of up to 39% for individual insurance customers. (The insurer announced Saturday that it would delay the increases until May 1.)

But the financial hardship has been similarly tough for small businesses that offer health coverage to workers. Many small businesses have seen rate increases of as much as 30% over the last year, insurance brokers say.

Passing those costs along to customers is frequently impossible. Most small-business owners know they’ll just lose sales if they jack up prices for goods or services.

So, like Davis, they face the unpleasant choice of either reducing health coverage or doing away with it entirely.

“They just don’t have the profit margins of larger employers,” said Steven D. Turner, an Encino insurance broker who specializes in small-group insurance. “There’s no money for health benefits.”

He said monthly premiums for his clients went up between 18% and 30% over the last year.

Higher rates are being charged by virtually all major insurers, brokers say. Anthem, Blue Shield of California, Health Net -- each has notified small-group customers that premiums are going up.

Insurers cite the rising cost of healthcare as the driver for higher rates. But brokers and small businesses wonder how those higher costs are resulting in such stratospheric rate increases.

“The increases we’re seeing now are bigger than they’ve ever been,” said Rick Martin, a West Los Angeles insurance broker who deals with numerous small businesses. “I’ve seen a few big increases over the last 35 years. These are the most dramatic.”

Paula Wilson, a Temecula insurance broker, said rates charged to her small-group clients have increased about 15% on average. “I’ve got seven renewals on my desk right now,” she said. “The average rate increase is 12.7%.”

Such double-digit increases are particularly striking in light of the fact that healthcare spending rose 5.7% last year, according to the latest government figures. The cost of insurance is far outpacing the overall cost of healthcare, which is itself outpacing the rate of inflation (2.7% last year).

Jerel Benjamin, 37, owns an interior design and construction company in Valencia. He has eight employees. Benjamin used to offer health benefits to his workers but was forced to drop coverage a couple of years ago because of rising costs. He has weathered the recession as best he could and now hopes to expand his business. He wants to make sure his workers stay with him.

“I started shopping around for health insurance about three months ago,” Benjamin said. “I’d like to offer it again, I really would. But the rates are too high. It’s unaffordable.”

Alberto Alvarado, L.A. district director for the Small Business Administration, said he has heard similar stories from numerous business owners.

“They want to offer insurance for employees,” he said. “They know that it’s the right thing to do. But it’s a big, big challenge.”

As it happens, California has rules that limit rate hikes for companies with 50 or fewer employees. But premiums can still go up by double digits, and the rules don’t apply to businesses with more than 50 workers.

Alvarado said his agency is sympathetic to small businesses’ healthcare woes, but it’s leaving a solution to others -- namely, our friends in Congress.

That’s another way of saying that small businesses, like many of the rest of us, shouldn’t be holding their breath for healthcare relief any time soon.

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