Small businesses can’t compete with insurance costs

By Ashley Fletcher Frampton, Charleston Regional Business Journal

For Pat Thompson, offering health insurance to employees of her Columbia-based medical billing company isn’t a nicety — it’s a must.

“We’ve learned through years of experience that if you hire the right people, you’ll be successful,” she said. “But to hire the right people, you have to offer them benefits that the bigger companies do.”

Two years after she and a business partner started the company, New Concepts Billing and Consulting, they began offering coverage for their workers and paying half of the premiums. It’s a high-deductible plan that costs between $350 and $500 per month, per employee.

The problem, Thompson said, is that the cost is still so high that several employees can’t afford their share.

Premium costs have gone up each year for the small group plan, and Thompson said not a day goes by that she doesn’t worry about needing a medical procedure that would further drive up costs.

Thompson’s challenge is common among small-business owners in South Carolina. Many are too busy to keep up with the complex health care reform policy proposals that Congress is debating. But they know one thing: The current cost of health insurance for very small groups is stifling their growth and hurting their competitiveness.

“It’s all about affordability, for small businesses,” said Frank Knapp, president and CEO of the S.C. Small Business Chamber of Commerce.

Knapp small businesses in the state that offer health insurance “are dropping like flies.” About 60% of businesses in South Carolina with 50 or fewer employees do not offer health insurance because of the cost, he said. And it’s not because they don’t want to.

“Businesses of any size want to offer benefits, because they are competing for labor,” Knapp said. “They will want to do it if you make it affordable.”

Heather Cole, owner of Superior Onsite Services of Columbia, is one of the small-business owners who have dropped coverage for employees recently. In December, Cole said she was faced with the decision to either lay off employees at her auto detailing and repair company or eliminate health insurance.

She chose to eliminate insurance.

“I want to be able to invest in the people who invest in me,” she said, but the money just wasn’t there.

Knapp said the high cost of health insurance for individuals and small groups also stifles entrepreneurship. Employees who want to start their own business or change jobs might choose to stay put because of health insurance.

Reform strategies

Knapp said his group supports reform plans that call for everyone to have health insurance, as well as a proposed system for small businesses to get coverage at lower rates through what’s called “the exchange.”

Through the proposed exchange, insurance companies would offer a variety of coverage plans for people without insurance or for small businesses looking for a better deal. Those individuals with low incomes could get government subsidies to purchase those policies.

The volume of people buying insurance through the exchange would create what amounts to a very large group, Knapp said. The mandate for everyone to be covered is a key part of the exchange proposal because it brings into the mix healthy, low-risk people who might not have insurance now, thus lowering premiums.

“We’re going back to the original concept of spreading risk around to a great number of people,” Knapp said.

The S.C. Small Business Chamber also supports tax credits to help small businesses provide insurance for workers.

Knapp, who has traveled to Washington in recent weeks to weigh in on reform proposals, said his organization has no position on whether a public option — a government-run insurer that competes with private insurance companies — should be part of the solution.

Proponents of a public option say it would ensure that insurance companies participating in the exchange offer competitive rates. But insurance companies and other opponents argue that private companies could not compete with the government. They say a public option is a precursor to health insurance run completely by the government because it would eventually drive private insurers out of business.

Jim D’Alessio, vice president of government affairs for BlueCross BlueShield of South Carolina, said adding more people to a government-run health insurance via a public option could also drive doctors and hospitals out of business.

D’Alessio said private insurance companies often pay more for medical services because the Medicare and Medicaid government systems pay less than the actual costs. Private insurance rates make up the difference, he said.

But if patients who now have private insurance switch to a public option — which he assumes would mirror Medicaid and Medicare rates — doctors would get less money for their services overall. That, he said, would “crash the system.”

Thompson, who owns the Columbia medical billing company, isn’t sure she’d support an expansion of government health insurance. Her idea of reform would consist of a way for small businesses to pool their employees into a large group, resulting in the comparatively lower premiums large companies can get.

According to Knapp, that’s essentially what the exchange would do.

D’Alessio said BlueCross BlueShield thinks reforms are needed. The company supports the mandate that everyone buy coverage as well as a requirement that insurance companies cover everyone regardless of pre-existing conditions.

To make mandated coverage affordable for those without it now, BlueCross BlueShield also supports government subsidies, D’Alessio said.

But he warns that if Congress tacks on fees and taxes for insurance companies to help pay for the subsidies, insurance companies will likely pass those fees back to consumers in order to survive.

Current system challenges

Insurance companies’ practice of denying coverage for pre-existing conditions is a major complaint for Pat Hancock, who owns small real estate companies in Bluffton and Columbia.

“They find all sorts of reasons to turn you down,” she said.

Hancock is participating in a program the S.C. Small Business Chamber of Commerce set up to match small businesses with physicians who give their employees discounted rates for office visits. But Hancock wanted to offer her employees coverage for more extensive health issues. The plan she could afford included a deductible of $5,000 for hospital visits and $750 for diagnostic procedures.

“So I thought, ‘OK, through this whole effort here, I have put together a well-rounded program for my employees,’ ” she said. “But all of my employees except one were denied coverage because of pre-existing conditions.”

Hancock said employees are penalized under the existing health care system for working for small businesses because coverage is not as good as with larger businesses.

“I have interviewed very qualified people who will not come to work for me, not because of the salary, but because I cannot provide them a good health care program,” Hancock said.

Cole, owner of Superior Onsite Services, said she hopes to be able to afford health insurance again in the future for her company, including for her own family. But she hopes to see insurance plans for small businesses that offer real coverage, unlike the version she said she had before. Cole calls it a “Swiss cheese” plan because it was full of holes.

“If it’s not cost-effective, it’s not even worth it,” she said.

Cole isn’t opposed to government-run health insurance. She was happy with the military coverage her family used to have, and she doesn’t think a public option gives the government too much power.

“We still vote for things; we still have control,” she said.

Jenny Reese, 25, is a young professional, likely considered a low risk for health problems, who does not have insurance. But it’s not because she feels invincible.

Reese was recently laid off from a large advertising firm. She joined with two other former employees of that company to start a small advertising firm in Columbia.

The other two owners are married and have insurance through a second job. That leaves Reese on her own.

Initially, Reese purchased a high-deductible, emergency-type individual plan, but she dropped it because, despite $100 monthly premiums, “the only time it kicks in is if you get decapitated,” she said.

Even with the policy, she paid $1,500 for an annual exam, she said.

“I’m too old to be on my parents’ health insurance, but I’m too early in this business to be able to do it on my own,” Reese said. “I’m hoping to see some kind of plan where I can go to the doctor without it costing $1,500.”

She said she is lucky, because she doesn’t have to worry about covering a family at this point. But she worries about getting into an accident herself.

“It’s definitely a gamble,” she said. “I can’t afford to have it any other way.”

Reach Ashley Fletcher Frampton at 843-849-3129.

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