Unhealthy increases
Employees at small firms hit harder by health plan costs

By Kimberly Blanton, Boston Globe, 2/18/2004

Every year the owners of Curry Ace Hardware ask their 24 employees if they want to trade their high-quality health insurance for something less expensive, and every year they vote no.

Rick Manupelli, floor manager for the Quincy store, has paid dearly for that decision. Since his first child was born four years ago, the family health policy has taken a bigger and bigger bite out of his paycheck. As Curry Hardware's costs for his coverage have increased -- up 68 percent, to $1,360 a month, since 2000 -- the company has raised Manupelli's share of that cost. About $408 comes out of his monthly pay, $246 more per month than he paid four years ago.

"If we weren't paying so much for health insurance," said the father of two, "maybe we'd make more money or maybe we'd have dental."

Health insurance premiums for Massachusetts's small employers are higher, and they are rising faster, than premiums for large employers. While companies of all sizes experienced double-digit premium hikes in recent years, small companies are often ill-equipped financially to absorb these persistent increases, so their employees bear the brunt.

Last year, Massachusetts companies employing more than 50 people paid an average premium of $818 per worker per month for a family plan, up 13.6 percent from 2002 and 37 percent since 2000, according to a 2003 survey by the state Division of Health Care Finance and Policy. Companies with fewer than 50 employees paid more for family coverage: $857 per month, up 17.4 percent last year and 42 percent since 2000. It is common to find small employers with annual premium increases of 20 percent or more.

"This is not a one year take the hit and we'll get past it," said Maria Schiff, the division's health policy manager. Small employers "have been hit with this for the last four years."

Health insurance for small employers costs more for a number of reasons, including higher administrative costs and large numbers of sole proprietorships that buy coverage only when they or their families need it. But small employers say the state's existing, quasi-regulated system needs reform.

Massachusetts trade associations have proposed a bill allowing their small-employer members to band together to buy health insurance. This would give them the clout to negotiate discounts on behalf of hundreds of employees and dependents, just as larger employers do. They are barred from doing so in the state's health insurance market for small employers, defined as those with fewer than 50 workers.

The bill -- backed by the Massachusetts Dental Society, National Federation of Independent Business, Retailers Association of Massachusetts, chambers of commerce, and private schools -- is on the House calendar for a vote as early as this spring.

"Not a day goes by without one or more members calling and asking about association health insurance," said Jon Hurst president of the Retailers Association. While his group provides policy prices and information to members, without an ability to negotiate, he said, "We can't save them one penny."

Said Terry Fancher, general manager of the South Shore Chamber of Commerce: "We're fighting for an ability to sit down at the table."

Healthcare providers are lobbying against the bill, including the two biggest in the small-employer market, Blue Cross and Blue Shield of Massachusetts and Tufts Health Plan. If enacted, opponents say it would undermine the existing insurance system for small employers, which would mean even higher premiums.

If some drop out of the small employer market to join association pools, that market would shrink and premiums for those remaining would rise because there would be fewer employers sharing the costs.

"We understand the premium increases in small [employer] group are unsustainable," said Dr. Marylou Buyse, president of the Massachusetts Association of Health Plans. But, she added, "The insurance market works only when you have a big enough group to spread the risk around." The proposal "could help some but it could seriously hurt other people."

Sean Curry and his father, Bob Curry, now own the hardware business started by his grandfather in the 1940s. Over decades, Curry Hardware expanded with the economy and contracted with the superstore invasion. Today, rising premiums for its Blue Cross health plan are hurting his employees' standard of living.

The Curry family values longtime workers who provide knowledgeable service to customers seeking the right tool or advice on home repairs. Yet health costs are eating away at employees' raises, Curry said.

"Customers say, `I see the same person every time I come back.' That's helped our business. For us to hold on to those people, we have to extend some decent benefits and pay as much of those benefits as we can," he said.

Shifting more costs to workers has also made it harder to hire and retain people. Workers today pay 30 percent of the company's total health premium, up from 10 percent in the late 1990s. To keep costs down, part-time workers, who are not eligible for health coverage, are being hired.

Blue Cross's chief actuary, Rina Vertes, said premium hikes were necessary to cover soaring costs for prescriptions, tests, and more doctor visits by the insured. Costs are easing, she said, and Blue Cross, which posted strong financial results in the third quarter last year, is reducing premium increases. Basic premiums for small employers who renew coverage in April will rise 7.8 percent, down sharply from 16.7 percent last April. "We do see relief," she said, "and we want to make sure we're getting that to our customers as quickly as possible."

In the small-employer market, premiums are determined partly by healthcare providers and partly by state regulation. Health providers set premiums based on five characteristics: workforce age, industry safety record, geographic location, payroll size, and how many employees accept the offered coverage.

State regulation limits what they can charge. Health providers can't, for example, boost a small employer's premium if a worker files a large claim for a heart attack or cancer treatment. Providers are also barred from charging any one employer more than twice what they charge other small employers for the same product.

All George Grillo knows is that something is wrong. The 20 percent increase in his health premiums this year for 10 employees of Grillo Rug in Braintree are a source of enormous frustration.

"The impact on small business," he said, "is really coming to the point now where something has got to give."

Kimberly Blanton can be reached at blanton@globe.com.
© Copyright 2004 Globe Newspaper Company.

< Return to News Room Index