Small Business: Can We Afford Health Care?

Like many small-business owners I look forward to my annual medical insurance negotiation with all the joy of a crab about to meet boiling water. This year proved no exception to the pain. Our medical insurance bill rose more than 17 percent, or $180,000. Our family-owned plastic-bag manufacturing company will have to churn out at least 30 million additional bags just to cover the increase.

So when President Obama announced in early March that he intended to tackle the nation's health-care mess, I took notice. Not only because he pledged to help the uninsured, but because he swore he'd find a way to corral runaway costs. While his mid-March proposal to free up lending to small business by guaranteeing loans made by the Small Business Administration helps in the short run, action on rocketing health-care costs remains central to ensuring long-term competitiveness. His commitment of more than $640 billion to fund health reform seemed like a serious acknowledgement that the current system is broken. Better yet, his willingness to build a broad coalition, that includes business, gave me hope that increases might not march on forever, eventually outstripping our ability to sell bags.

Certainly the plan has lots of goodies for small companies. It offers a tax credit for smaller firms that provide health insurance and offers to cover the part of the cost of catastrophic care currently shouldered by business. And the possibility that small business could buy insurance from a public plan would offer the same benefit as purchasing as a group, which should lower premiums since cost would be spread among larger numbers.

But, of course, there are the details. Almost immediately, critics focused on the cost of the plan, some of which would be shouldered by business. To pay for covering the uninsured, President Obama may have to raise taxes on small-business owners like me who already bear the cost of providing insurance. By limiting the deductions for so-called wealthy people making more than $250,000 a year, the administration thinks it'll generate the dollars needed. That's a tough sell given the number of people likely to get nailed with the tax. Failing that, there's discussion of taxing the health benefits that companies currently give employees, a possible penalty on working people.

Dealing with this problem will not be easy. We've been struggling with it for 10 years. Early on, my small business joined a trade-association program, which dropped our expenses by folding our 80-employee company into a pool of more than 5,000 workers. We cut our insurance bill by more than10 percent, but that proved to be only a one-time gain.

Since then we've tried one maneuver after another simply to limit increases. First we began to switch between plans within those offered by our association. For instance, one year we offered a Kaiser Permanente Health Maintenance Organization plan with a $10 copay for a doctor's-office visit, and then jumped to one with a $25 copay the next year. That helped cut our increases by half. Then about four years ago we instituted premium sharing, with employees picking up as much as 20 percent of the cost of their insurance. Not great, but it allowed us to continue covering dependents, making us one of the last companies in our association that does so. About the same time we also started splitting the saved premium with employees who elected to take their spouse's health-care coverage, providing they could prove they did.

Last year, this juggling act no longer seemed possible. Some of our employees were paying close to $200 a month as part of their premium sharing, depending on their age. While our workers make good money (up to $23 an hour for semiskilled labor), their contribution could, on the lower end of the pay scale, amount to 10 percent of their income. Not surprisingly, our employees complained, especially as high gasoline prices siphoned off cash and falling home values threatened many with foreclosure.

So we got creative. We devised a safety bonus that provided employees $100 for each month our factory logged no injuries. That helped us cut our workers'-compensation insurance cost while putting cash in the hands of our workers. The offset of lower workers' comp covered half the cost of our medical increases, so our family made the decision to eat the jump in this year's cost. When we told our employees at a factory meeting they applauded. But they grew gravely silent when I explained how many more bags we'd have to sell to cover the expense.

Given the rising cost, we continue to look for ways to save. For instance, we've started to encourage healthy habits. Last year we paid for gym memberships for our office staff, around 18 people. It's a city-run facility with low rates, so the deal only cost $3,500. Thinning waistlines among some staffers testified to the program's success. We also contracted with a local company called the Fruit Guys to have a box of fresh fruit delivered to the office each week. This has helped reduce the amount of junk food, especially chocolate, consumed in the office, probably as a way to handle stress.

What about the future? Next year we plan to look at self-insuring. Our company is too small to do so by itself; a large claim could wipe us out. But some local companies have joined together in a group scheme that could reduce our costs by 10 percent. However, our savings may only be one-time, with yet another ceaseless drumbeat of health-care increases to follow.

So I'm certainly rooting for a solution. The government knows companies like mine cannot shoulder double-digit increases in insurance premiums year after year, especially when we compete with countries like China where health-care costs aren't borne by corporations. But agreeing on the premise is just the beginning. Paying for it is another. Pass the hat, anyone?