Rising health insurance costs are squeezing the budgets of Nashville small businesses and putting them between a rock and a hard place - because to compete against large firms for talent, small firms must offer quality employee health benefits without having the same financial capacity.
"$3,000 a month is a real heart-stopper," said Nashvillian Tonya Jones, who sits on the city Planning Commission and owns a general contracting firm, about the best price she found to provide health insurance for eight employees when shopping for a new provider last year.
The problem is that if Jones's heart does indeed stop, she won't have the insurance needed to pay for the necessary medical procedures unless she buys a non-company health care plan - one without a group discount. The $3,000 monthly cost was simply too much for her company, Mark IV Enterprises Inc., to afford.
At present, most of her employees are relying on their spouses' family coverage, while Jones is reimbursing the costs of a few who have taken individual plans and also providing membership to a non-insurance program that provides discounts for minor medical expenses.
Meanwhile, Lucy Carter, a Nashville businesswoman who launched a new CPA firm in town two weeks ago - Carter, Lankford CPAs - decided to cough up the amount, $3,000 monthly, to provide full PPO coverage for her firm's five employees. To save costs, however, Carter and her partner in the firm decided to latch onto their spouses' coverage.
"It's pretty much an expected benefit," Carter said. "We all came from the same existing firm, and we wanted to keep our benefit structure comparable [because] we didn't want anybody to suffer a loss of benefits for coming to work for us."
"In order to attract the best and the brightest" - who are especially needed in a service firm - "you've got to be able to provide the benefits," she said. The health coverage is the third-greatest expense her company pays.
Small companies have been hit especially hard by recent health care cost increases, as shown in a 2004 study of employer health benefits conducted by the Kaiser Family Foundation, a national health care think tank. The percentage of small firms employing between three and 199 workers offering health coverage fell from 68 to 63 percent between 2001 to 2004, the study found.
Furthermore, among U.S. companies in 2004, the premiums for covered workers increased the greatest for firms employing between three and 24 workers - by 13.6 percent - whereas the average increase for all firms employing between three and 199 workers was 11.5 percent, and the increase for larger firms was 11.1 percent.
The smallest companies are hit especially hard if their workers are not young - as is the case with Jones's company, where many workers are middle-aged - or if just a single company employee has a serious medical condition, according to David Moore, a managing partner at Capital Benefits Group, an employee benefits company based in Nashville.
As a broker, Moore does the insurance shopping for his small business clients.
"The bigger you are, the more premium there is [to cover higher claims when they arise]," Moore said. "So you're okay if you've got a couple of diabetics if you have 25 employees, but if you only have five employees and you've got a diabetic, then you've got problems" - meaning, especially high insurance costs.
Moore believes the problem has been compounded by the federal HIPAA regulations that require insurance companies to cover many of the costs of the pre-existing conditions of new customers, but also permit insurance companies to increase their rates by 108 percent when doing so to cover the risk.
So if a seven-person company faces a 20 percent rate increase at its annual renewal because an employee has come down with a serious medical condition, shopping for a new provider will likely be futile because the 20 percent increase winds up comparing nicely to the 108 percent increase, he said. The company finishes without a choice.
Because of such difficulties, a debate is raging in Washington regarding "association health plans" - insurance plans that national small business associations, composed of hundreds or thousands of small businesses, would be permitted to create to pool risk, bargain with insurance companies on larger economies of scale, and bypass state insurance regulations.
The legislation, which has detractors and supporters on both sides of the Republican-Democratic aisle, has stalled in Congress, however, with many claiming that a lack of regulation would result in failure.