Insurance Rates Mean Cuts to Employee Coverage

The slowing economy is taking yet another toll on small businesses. More and more are dropping health insurance coverage for themselves and their employees.

A new survey conducted by online payroll service SurePayroll found that 56 percent of small businesses do not offer a health care plan, primarily due to the high cost. Worse, more businesses are dropping coverage. When compared with a 2006 survey, SurePayroll reports the number of small businesses offering health insurance dropped by 32 percent.

"It was tough before and now it's getting even tougher for small-business owners to offer health insurance," said SurePayroll President Michael Alter in a press release. "The cost of doing business is going up -- health insurance premiums are going up. Many owners feel they have no choice but to cut costs wherever possible, including on health care coverage."

Lorrie and Thomas Blitch, owners of child development center The Magellan Academy on Deerwood Park Boulevard, have worked with several insurance carriers in an effort to keep rising premiums contained.

"Each time, each renewal year, the rates would be jacked so far up," said Lorrie Blitch. "As a small business, we couldn't afford it. We have to pay 50 percent [of employee health insurance premiums] and sometimes it would go up $150 per employee per month. We would look at the budget and say, 'We can't afford this.' "

Magellan Academy has 45 employees who typically earn about $13 per hour, and it will have at least 90 workers when its second location opens in Durbin Crossing next month.

Despite the cost, dropping health insurance coverage was never an option.

Blitch said offering health insurance is an important tool that she uses not only to recruit the most qualified job applicants, but to retain her most experienced employees. She's not the only one who realizes the value of offering a health benefit. The SurePayroll survey found that two out of 10 respondents recalled at least one time when a prospective employee turned down a job offer because of a lack of health care benefits.

"We compensate them well and because of that we have a low turnover rate," Blitch said. "My husband and I feel they work hard for us, so we believe we should take care of them."

Magellan Academy offers several types of coverage including a major medical plan. They are now considering adding a health savings account plan to help the employees meet high deductible costs. HSA plans in conjunction with high-deductible health plans allow employees to save money that can later be withdrawn tax-free to pay for qualified medical expenses.

"We're always looking at different avenues to save money and reduce their taxable income," Blitch said.

Business owners should meet with their CPA and financial planners before deciding whether to drop coverage. Dropping coverage could have an unintended effect on the owners themselves if they develop a medical condition that prevents picking up a reasonably priced individual plan in the future.

"Let's say [a business owner is] 48," said Bert Livingston, a retirement and estate planning strategist affiliated with National Financial Services Group. "At 52, he has a medical issue [that prevents future coverage through an individual plan] but he wants to retire at 63. There's what's called the Medicare gap. Where is the health insurance?"

It takes a bit of effort to find them, but there are affordable health care options on the market that can save both the employer and employees money. Different plans feature different levels of deductibles and benefits to help make health care less costly. There are also "cafeteria plans" which allow employees to choose a plan suited to their needs, pre-tax.

"You can have four or five programs so that the employees can choose which one they want," said Dana Edwards, a general contracting agent with Blue Cross and Blue Shield of Florida Inc. "You can have a low-cost plan, a high-deductible plan and the HSAs are becoming very popular. So, it gives them a variety of choices."

"It comes out of [the employee's] check pre-tax, which reduces FICA and Social Security, and the employer is seeing the payroll reduced and so his workers' compensation is reduced. A lot of employers don't think about that."

Employers are also able to receive a tax deduction on their contribution.