Small businesses face tough choice: Drop health insurance or cut jobs

More and more small businesses face a Hobson's choice: eliminate their employee-sponsored health insurance plans or start eliminating jobs. With health insurance premiums topping $800 for single employee coverage per month in many states, covering just three or four workers can mean one less position in a small company. Health insurance premiums for small businesses rose 74 percent from 2001 to 2008, according to the non profit research group the Kaiser Family Foundation.

The National Small Business Association said that 10 percent of small businesses are thinking about eliminating coverage over the next year. That's up from three percent in 2005. Hewitt Associates found in their recent survey that 19 percent of all companies plan to stop providing health-care benefits in the next three to five years.

Declining coverage among small businesses is not a new trend. In 1993, 61 percent of small businesses provided health insurance for their employers. In 2008, only 38 percent did. With about 50 percent of the population working for small businesses the phenomenon helps explain why the number of Americans without health insurance keeps climbing. Add to that the growing number of unemployed and we have a health disaster in the making.

As Daily Finance's Dr. Russell Turk recently pointed out, the consumer health advocacy group Families USA released a report earlier this year indicating that 86.7 million Americans were uninsured for at least a portion of 2007 and 2008. That's one out of every three Americans without health insurance.

The report found:

  • Nearly three out of four of those uninsured Americans were without health insurance for at least six months.
  • Almost two-thirds of them were uninsured for nine months or more.
  • Four out of five of the uninsured were in working families.
  • People without health insurance are less likely to have a usual doctor and often go without screenings or preventative care.
When an employee loses health insurance, often they can't even qualify for individual insurance because of preexisting conditions. Or even if they do qualify, they can't afford to pay the premiums. The average cost for a family on a private health insurance plan can exceed $20,000 per year.

I used to have health insurance as part of the Florida small business plan, which allows one-person businesses to become part of the larger group plan. Even with those group discounts, my insurance rocketed to $1,200 a month this year -- so I know what small businesses are facing. The $1,200 a month plan included a $3,000 year deductible, so I would have to to pay $17,400 out of pocket before I got even one dollar of coverage. I couldn't justify the expense for my business (and told my employee so). My preexisting conditions (arthritis and high blood pressure -- common among many over 50) made it impossible for me to get individual coverage. I was rejected by every company to whom I applied.

Like most Americans without health insurance, I have put off yearly preventive screenings. I've decided I'll do them now just once every two years. Many people without health insurance can't afford to do them at all.

Fixing the health care mess needs to be a top priority even during this recession. More and more people who can't afford doctor's visits are showing up for basic care at emergency rooms where they can't be turned away. If we continue to ignore the problem, my prediction is we'll see a total collapse of the health care system not unlike the banking crisis as the hospitals saddled with these unpaid bills start to fail.

Lita Epstein has written more than 25 books including Working After Retirement for Dummies.
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