The average annual cost increases for providing health insurance to a company's employees are enough to give any business owner a heart attack. In 1991, for the first time in three years, the average increase for company health insurance premiums was under 20 percent, according to a nationwide study by A. Foster Higgins & Co., a benefits consulting firm based in New York. Unfortunately, this lower rise reflected not lower costs, but the decision of more companies to shift a greater share of payment responsibility to employees.
John Magnuson, CPM of Magnuson Management, Inc., a firm with about 280 employees in Tacoma, Washington, reports facing a 39-percent increase for his company's health insurance in 1993. That was the equivalent of a salaried staff person. In this kind of environment, he states, "you have no choice but to cut everybody back, or cut someone out."
Almost everyone agrees that an overhaul of the health-care system is long overdue, but almost no one agrees on how to carry it out. While policymakers are grappling with proposals for change, small businesses have to find ways of reducing their premiums-before cost increases wipe out their profits.
Controlling health-care costs can be harsh medicine, but if you find the right prescription for your company's needs, you can get results.
THE UNIVERSAL ANTIDOTE: FINDING A GOOD BROKER
All evidence about rate increases aside, business owners should not dismiss the possibility of getting a deal that is better than their current policy.
The first step towards exploring all your options is to hire a broker familiar with the market and willing to go the extra mile to find the most appropriate policy. A well-known insurance broker with a large clientele commands the attention of the insurance industry in a way a small management firm with 25 employees cannot.
Robert A. Murray, CPM, president of RCP Management Company, Princeton, New Jersey, recommends shopping the insurers every year. His technique is to ask his agent for an estimate of the next year's premium increase three to four months in advance of policy renewal. "Frankly,: he states, "if it's a 14-percent increase, which I'm expecting again this year, I can live with that. With anything higher, I get nervous and go shopping."
That means going to an outside broker with inside knowledge of the options. However, Thom Freismuth, president of San Diego's Financial Advisory Services, a benefits consulting firm, cautions that you should check your broker's credentials.
"A lot of people assume that anyone can sell health insurance-the fire and casualty agent, the life insurance agent and often they can,: he says. "If you can sell an individual health insurance policy or disability policy, that same license allows you to sell to a 20,000-member group."
To make sure you work with someone who has sufficient expertise, however, find out if health insurance is a major part of the broker's business, and get references from the broker's clients.
Ask the insurance broker to evaluate your program, including your cost-control measures and objectives for the kinds of benefits you want to provide. Think about whether or not you should change your benefit objectives. If your business has gone from flush cash flow to survival mode, your health-care objectives will obviously be different. Ask what strategies the broker can suggest for decreasing your premiums.
PRESCRIPTION ONE: PROVIDING A BENEFIT TRADEOFF
The most obvious way to reduce a company's costs is to limit employee benefits. Magnuson, for example, cut the firm's expected 39-percent increase to 15 percent by increasing the deductible from $250 to $500 and asking the employees to make a $10-per-month contribution to their premiums.
Rebecca Chapman, comptroller for Mathews-Click-Bauman, Inc., reduced a drastic premium increase by employing similar strategies, as well as increasing the eligibility requirement from 30 full days of employment to 90 days. …