The Pain of Health Coverage

Frank Manzo keeps doing the math, trying to figure out how he can still offer health insurance to his employees.

His 28-employee tech-staffing company, Computer Methods Corp., charges clients $35 an hour for help desk workers. He pays them $25 an hour.

Health insurance premiums proposed for 2008 for a family run nearly $12 an hour - up 30 percent from last year.

Forget about profit. Forget about rent on the company's Marlton offices, the electric bill, or even paper for the copy machine.

The middle-class, college-educated people at Manzo's company were on the edge of joining America's 47 million uninsured.

"Where do I find the money?" Manzo asked, his voice rising in frustration. "What am I supposed to pay them - $10 an hour? At this point, they may as well go work for McDonald's."

Health insurance makes everyone miserable. But among the most miserable are small-business owners.

"I dread this time of year," said Manzo, who is chief operating officer. After a lot of agony, Computer Methods switched to a less generous managed-care plan, avoiding the 30 percent increase.

Six in 10 companies with fewer than 199 employees offer health insurance, and the percentage is declining annually. Less than half, 45 percent, of companies with nine or fewer workers include health insurance in compensation, according to a study by the California-based Kaiser Family Foundation.

This week, Pennsylvania's General Assembly may vote on a bill intended to help small businesses with health insurance. But the state's insurers disagree over whether it actually will.

Meanwhile, small businesses are feeling the pain.

"I have the most wonderful loyal employees in the world, and there's no way I don't want to give them every benefit," said Nancy Schwab, owner of the Artful Framer shop in Paoli. "But in this economy, it becomes a stretch." She pays their benefits before she pays herself.

Larger firms have two advantages, said acting Pennsylvania insurance commissioner Joel Ario. "They have enough workers and dependents to spread risks. The other thing they have is leverage in the marketplace."

Large companies can ask insurers to provide services that help with cost-control, disease management and wellness, Ario said. "A single small firm isn't going to get the same level of attention from the insurer."

Even if insurance companies offer those same programs, "in a small firm there isn't going to be a human resource department to manage them," Ario said.

Surveys chart what appears to be an optimistic trend. Since 2002, when the cost of health premiums rose 13.9 percent, the rate of increases has been slowing.

Last year, average premium costs rose 6.1 percent - not double digit, but more than the 3.7 percent increase in workers' earnings. Meanwhile, workers are paying more for coverage.

Even so, many smaller businesses are still seeing double-digit increases.

John "Sean" Meenan, chief financial officer at IPR International L.L.C., a data-protection business, is looking at a 20 percent increase to cover the company's 22 employees and their families.

"In the past, we've been able to restructure some of our plans to keep our costs from jumping," he said from the firm's Conshohocken headquarters. "This year, any solution we put in place is going to increase our costs."

At Beyond.com, an operator of online job directories in King of Prussia, health insurance is going up 15 percent. "It's absurd," chief executive officer Rich Milgram said.

Milgram even gets a break. Because he has a younger, and presumably healthier, workforce, he can seek bids from insurance companies such as Aetna Inc. and UnitedHealth Group Inc. that base premiums on the health of the employees, or medically underwrite.

Even Philadelphia's Independence Blue Cross, which does not medically underwrite, can adjust its small-business premiums based on age.

"I have a personal beef with health care," Milgram said. "I think it's discriminatory. Health care can charge more based on the age of the person or the sex of the person, but we're not supposed to hire based on that.

"How can companies not discriminate if health care companies are discriminating?" he asked.

That is part of what legislators in Harrisburg are expected to consider, assuming they vote before they leave town for the holidays.

House Bill 2005 would prohibit insurers from using medical underwriting, but allow premium adjustments based on age, region and the insurers' market share.

Pennsylvania and Hawaii are the only two states that do not put restrictions on medical underwriting, Ario said.

Independence Blue Cross favors the bill, saying it is fairer for all groups. Aetna is opposed, saying it would make it difficult for them to compete with Independence Blue Cross and other Blue Cross insurers, who dominate the market in Pennsylvania.

And, Aetna says, it will not lower premium rates or help cover more people.

Pennsylvania has among the lowest-cost premiums in the nation. Premiums are higher in New Jersey, where medical underwriting is prohibited.

"Understanding it is all a balance of a lot of competing needs, we think competition is very important," said Samuel Marshall, president of the Insurance Federation of Pennsylvania, which represents all insurers except Blue Cross affiliates. "Generally, where you have competitive markets, you have lower rates."

For retailer Michael Fritz, legislation is not as important during the holiday shopping season as keeping his employees covered.

Last year, insurers were charging A.T. Cigars $700 a person per month to cover five people. The three-store company, based in Horsham, paid half.

But this year, faced with yet another increase, the partners had reluctantly decided to drop coverage. "We were contemplating whether we could afford it," Fritz said. "It caused us a lot of stress."

Instead, their broker, Ross Schriftman of Kistler Tiffany Benefits, set them up with a high-deductible health-care plan coupled with a health-savings plan.

The premium went from $700 to $170 a month with the company covering half. Employees will have to pay the first $2,000 in sickness-related expenses. And the company would kick $85 a month for health expenses into a pretax savings account for each employee that would earn 4 percent interest a year.

"We were being consumed by the cost of health care," Fritz said.

"But think of it this way. Insurance gambles that you are going to stay well and not use the money.

"If you stay well, the insurance gets all the money, and you get none of it," he said. "So why not have the individual get a little bit of benefit?"