Small firms fear rising health costs

Some may drop coverage because of rates, recession

468,687 insured in Md.

Increases may get passed to workers who can't pay them

January 06, 2002|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

The owners of Seibel's Family Restaurant want to offer their employees attractive health insurance coverage, but doing so is coming at an increasingly higher cost.

In the eight years since a state law took effect to make health insurance more affordable and accessible to small businesses, the 62-year-old restaurant has seen its premiums double to about $48,000 a year.

Seibel's isn't the only small company complaining about the high cost of health insurance.

The insurers also gripe that the state's required package of insurance benefits is too costly to implement.

And while state officials and small business advocates praise the reform for insuring more people, some fear that the numbers may decline in view of the recession and rising health costs.

Health insurance premiums in general are expected to increase as much as 20 percent, in part because of higher drug, hospital and managed-care costs. Many small companies may stop offering insurance altogether, or pass the costs on to employees who won't be able to afford the premiums.

"There are some things you can cut back and some things you can't," said Jules "Sonny" Morstein, the owner of 103-year-old Morstein's Jewelers and chairman of the Baltimore City Council Ad-Hoc Committee on Small Business.

"You still have to have inventory and you still have to pay your rent and utilities. We're all trying to be as generous as we can, but there are certain things you can cut, such as insurance."

The General Assembly hoped to make access easier for small companies when it passed legislation requiring insurers to offer standardized health benefits to businesses that employ two to 50 employees.

The legislature was prompted to act because insurance companies had been turning down smaller firms or charging high premiums for policies they regarded as risky and unprofitable.

The small-business program, one of the first in the nation, was aimed at 650,000 Marylanders who had no health insurance in 1993. Three-quarters of the uninsured worked in small businesses or were dependents of those who did.

The reform sought to stabilize premiums by broadening the risk pool to all small employers, rather than on a firm-by-firm basis. Supporters also hoped competition among insurance companies would drive rates down.

`Plan has worked'

"I think the plan has worked in many ways. You don't hear the kinds of stories you used to hear in the '80s about small businesses having their insurance dropped because one employee got sick," said Frank Kelly III, a broker with Hunt Valley-based Kelly & Associates Insurance Group, and former president of the Maryland Association of Health Underwriters.

"But there are still things we can look at improving. It's not an issue of availability anymore, but one of affordability."

Seibel's recently raised its menu prices 3 percent to help pay its $48,000 annual bill for health insurance. The insurance cost represents about 3 percent of its annual revenue.

The restaurant also passed more costs on to employees: whereas Seibel's once paid 90 percent of premiums, it now contributes 50 percent for new hires, 60 percent for those employed six months and 10 percent for each year after that, maxing out at 90 percent.

Since 1993, Seibel's health insurance costs have more than doubled - from $330 to $692.73 a month for a family and from $100 to $241.87 for an individual.

Only a dozen of the Burtonsville restaurant's 50 workers, whose wages average $10 to $12 an hour, have opted for health coverage.

"I want to be able to take care of my staff," said Lynn Martins, whose grandfather opened the Montgomery County restaurant. "I have a very loyal staff and I want to be loyal to them. I don't want people to come to work sick."

"But it has become expensive," she said.

Maryland officials acknowledge that the premiums are ballooning for small businesses, but say that health care costs are rising for everyone because of factors beyond the state's control.

Furthermore, the law stipulates that small business rates, which are set by the Maryland Health Care Commission, cannot exceed 12 percent of the state's average annual salary.

Overall, the program has worked, Maryland officials say. "I think the plan has met all its stated goals," said Barbara G. McClean, executive director of the Maryland Health Care Commission.

"It took away many of the obstacles that were out there and made insurance available to small companies."

The General Assembly commissioned a study last year to examine the program's cost and effectiveness. The results are due in mid-February. "Our hope is to get an outside source to evaluate what we've done since 1994 and look at what other states are doing," said Del. Van T. Mitchell, the Charles County Democrat who sponsored the plan in the House. "We want to see if there are changes we need to make."

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