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As Costs Rise, Businesses Struggle to Provide Worker Health Insurance

January 7, 2009 at 6:20 PM EST
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In the third and final in a series on health care challenges facing the new administration, Betty Ann Bowser reports on small businesses' struggle to keep up with the rising cost of insuring their employees.
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JIM LEHRER: Now, the third and final story in our health care series pegged to the challenges facing the new Congress and the Obama administration.

Tonight, Betty Ann Bowser reports from Kansas on the rising burdens for small businesses and their employees. It is the work of the NewsHour Health Unit, a partnership with the Robert Wood Johnson Foundation.

KEN DENTON, Owner, Tillie’s Flower Shop: You know, the great thing about this kind of business is the employees wind up being just like family.

BETTY ANN BOWSER, NewsHour Correspondent: Ken Denton’s family has been in the flower business for three generations in Wichita, through good times and bad. But this economic downturn has been especially difficult because it’s affecting his ability to cover his employees with health insurance.

Since the 1990s, Denton has offered a comprehensive plan to which he contributes $80 a month for each employee. The rest of the monthly premiums are paid by his workers.

In the past eight years, those premiums for small-business owners like Denton have gone up 129 percent. Add to that the economic downturn, which has thrown his business off 11 percent, and he’s worried he won’t be able to offer health care much longer.

KEN DENTON: I’m concerned about the fact that we’re going to have even the dollars to be able to make a contribution, because, when you go through hard times, you know, you’ve got to keep the purse tight. You’ve got to watch your expenditures.

Many small businesses suffering

Ken Denton
Owner, Tillie's Flower Shop
I'm concerned about the fact that we're going to have even the dollars to be able to make a contribution, because, when you go through hard times, you know, you've got to keep the purse tight. You've got to watch your expenditures.

BETTY ANN BOWSER: Small businesses like Denton's drive the American economy. They produce half of the gross domestic product of the country.

But a recent survey done by the National Federation of Independent Business showed 58 percent of all small-business owners say they're having a hard time keeping up with the cost of health care.

KEN DENTON: It leaves us in a tough spot, because, number one, the costs are going up, and we certainly can't provide any more contribution to that to the employees. And I'm almost certain that next year we're not going to be able to offer anything, and everybody's going to have to go out and look for something outside.

BETTY ANN BOWSER: Denton isn't just worried about money. There's another major issue that could force an end to coverage for his workers. Like many insurance companies that offer plans to small firms, his requires 75 percent employee participation.

KEN DENTON: And that gets to be a struggle, because the cost has gone so high. For us, for example, the people that had the insurance here are people that really need it. And it's the older group and it's a group that utilizes it more than anyone else. And it drives the cost up. And the young people, who don't necessarily need it, drop out.

BETTY ANN BOWSER: Don Sweet has worked for Denton for 15 years. At one time, he was insured under the company's plan. But the premiums got so high he dropped out and found health insurance in the individual market that was $129 a month cheaper.

DON SWEET, Delivery Manager, Tillie's Flower Shop: It's pretty much the same thing that we already have, and it's a lower deductible, so just an 80-20. I pay 20 percent; they pay 80 percent. Just to think that I'm getting -- even now I would say a better coverage, a lower deductible, for a lot less.

Few options for the ill

Pam Kitchen
General Manager, Tillie's Flower Shop
We're both 55 years old. So if it gets to the point where we can't have health coverage through here, then I don't know what -- I mean, I could probably get covered, but I don't know.

BETTY ANN BOWSER: That's the same reason other employees have opted out, leaving the pool of workers in the plan with very few, young, healthy people.

KEN DENTON: This year, we had a very, very hard time qualifying, and our fear is...

BETTY ANN BOWSER: Having enough people on board?

KEN DENTON: That's right, yes, to stay in compliance. And next year doesn't look good.

BETTY ANN BOWSER: Pam Kitchen is typical of the employees in Denton's plan. She really needs the group policy because, without it, her husband would be uninsurable.

PAM KITCHEN, General Manager, Tillie's Flower Shop: The other insurance companies deny him because he had a stroke about 20 years ago and he has to take a blood thinner. He has a blood disorder.

BETTY ANN BOWSER: Kitchen pays almost $1,000 a month for her insurance, but she says it's an absolute necessity.

PAM KITCHEN: It's hard. It's very hard. We both need to have health insurance. You know, we're both 55 years old. So if it gets to the point where we can't have health coverage through here, then I don't know what -- I mean, I could probably get covered, but I don't know. I suppose my husband would have to get on state insurance or something.

BETTY ANN BOWSER: In fact, more than half of the 47 million Americans who have no health insurance work for small businesses. And according to Drew Altman, president of the Kaiser Family Foundation, that number is growing.

DREW ALTMAN, Kaiser Family Foundation: There's a lot of movement in the small employer sector of our economy, so as new small companies are born every day, now the new ones don't provide it at all, don't provide health coverage at all, so that's really the Achilles' heel of the employment-based health insurance system.

Less coverage at higher cost

Ashlie McKay
Vice President, Promo Depot Inc.
We keep getting less coverage for more money. We're bracing for what might come. We may have to do away with health care and say, "Well, guys, that's not something that we can provide any longer."

BETTY ANN BOWSER: And in recent years, even those who do have insurance have found themselves being moved to high-deductible plans to save money. The number of clients opting for those plans has doubled in recent years for Wichita insurance broker Lou Smith.

With high-deductible plans, insurance doesn't kick in until an employee has paid out a set amount of money, say, $1,500. In return for the high deductible, the cost of the monthly premiums are lower than for more traditional insurance plans.

LOU SMITH, Employee Benefits Director: One of the things that we're talking with our clients about are high-deductible plans, encouraging the employees to take a higher deductible to become more involved in the process of health care than perhaps they had been heretofore, and to ask more questions of their physicians, perhaps seek other alternatives for health care to see if there's some other lower-cost drugs, for example.

BETTY ANN BOWSER: Ashlie McKay owns the Promo Depot and offers her six employees a high-deductible plan. Workers have to pay the first $2,500 of their health care costs. Then, the insurance takes over with 100 percent coverage.

There is also a co-pay for doctor office visits and prescription drugs that each worker has to pick up.

McKay and her husband run the small company in Wichita, which organizes promotional campaigns for businesses around the country. They are expecting things to be slow this year because of the economy. They've also just had a 10 percent increase in their health insurance for the second year in a row.

ASHLIE MCKAY, Vice President, Promo Depot Inc.: We keep getting less coverage for more money. We're bracing for what might come. We may have to do away with health care and say, "Well, guys, that's not something that we can provide any longer."

BETTY ANN BOWSER: Nearly one-quarter of all the jobs in Wichita depend, in one way or another, on the aviation industry. Those companies that build the airplanes recently announced they intend to lay off 1,800 people in the next few months. Local business leaders say that could be just the beginning.

Small-business owner Don McGinty is concerned about that. He and his 35 employees make airplane parts. He spends about $100,000 a year on health care for his workers. And he says, regardless of the state of the economy or rising health care costs, he's got to continue to offer the benefit.

McGinty has been through recessions before.

DON MCGINTY, Business Owner: I do know one thing, that you need to conserve, you need to save cash, you need to be ready for whatever happens to you, and that's what we're doing now, is making sure that what we spend, we spend wisely, and we don't spend that much of it.

Small businesses drive job growth

BETTY ANN BOWSER: Tim Witsman, president of the Wichita Independent Business Association, says that if small-firm owners like McGinty can hang on, they might be able to help pull the country out of its current recession.

TIM WITSMAN, President, Wichita Independent Business Association: Small businesses are generally where your real growth in jobs come. I don't care what you look at: car manufacturers, the financial companies, they lose jobs. The growth is not necessarily in that one or two person, but in that 100, 200 kind of company. That's where you see the growth in the country.

BETTY ANN BOWSER: The Small Business Administration says health insurance expenses are the fastest-growing cost item for all employers and that, unless something changes dramatically, those costs will soon overtake profits for the first time in American history.