When

good, reliable employees are hard to come by and employers will try just about

anything to entice them, some of the most effective offers they can make are

generous benefits packages--especially with health insurance plans.

But

health insurance premiums have been steadily on the rise and it’s becoming

increasingly difficult for employers--particularly small employers--to foot the

bills, which puts them in quite a predicament in a tight labor market.

A

number of factors have converged in recent years to create this situation.

Health care costs have increased and providers are demanding higher payments

from insurance companies. In Florida, legislation has made insurance available

to more people, but it has also driven up costs and spurred some insurance

companies to pull some of their products out of Florida. That means less

competition, which drives costs up farther.

Small

employers, who are most affected, have been left scrambling for alternative

plans. What they are finding in Southwest Florida are fewer plans with fewer

benefits and higher premiums.

Small

Employers Bite the Bullet

When

Harmon Photo & Video tried to renew its group insurance last year, its

owners discovered that the company that had insured it, American Medical

Security, would no longer be selling small group insurance in Florida. "We

shopped around and the prices were considerably higher when we had to renew our

group policy this year," says co-owner Jim Harmon. With about 25 employees

on the plan, the company ended up with premiums about 30 percent higher.

"This is as big of a jump as I’ve seen in a long time." The company

doesn’t want to consider dropping employee coverage, but "if the rates get

much higher, we might be forced to because it’s just getting awful expensive."

For Coral

Veterinary Clinic, rates have gone from around $185 to $210 in the past year

per employee, says hospital manager Kimm Pontiff. Paying 90 percent of the

premium for about 25 employees on the plan gets pricey. "But nowadays,

with unemployment being so low, you have to be able to compete in order to get

good employees," she says.

Dropping

insurance coverage for the three people in the group at U.S. Tax Accounting,

Inc. really is not an option, says owner Jay Hillis, but it is a sizable bite

out of the company’s budget. "It’s our third-biggest expense. It’s

ridiculous. You have salaries, and then rent, and health insurance is our

third-biggest expense."

About a

year ago, Hillis got an eye-popping rate increase--70 percent--and news that

American Medical Security was dropping Florida. "We’d never had anything

that big," he says. "I don’t think they were gouging us because all

the other companies were charging the same or more, when we started to do some

price shopping," Hillis says. "If you get people who are over 50,

like the three of us are, everybody’s had some kind of medical history."

That not only forces premiums up, it could mean that they might not get

coverage for a period of time for preexisting conditions.

He was

tantalized by the concept of medical savings accounts, but couldn’t find any

available. He also looked at HMOs, typically more affordable than PPOs, but

"“there really isn’t one available in Collier County," he says.

Increasing

Health Care Costs

Rising

health insurance premiums are nothing new. Medical inflation has been

outstripping the average inflation rates for years. It has been running 8 to 15

percent, says Tom Torgersen, director of sales for Blue Cross/Blue Shield of

Florida--quite a bit higher than the 2-3 percent national inflation rate.

Some in

the health insurance field insist that the spiraling costs can be blamed

largely on cyclical factors.

Insurance

companies compete for business by offering low rates. "As they grow that

business with competitive rates, their costs are increasing, their margin

decreases, and it gets to the point where they have to increase their

rates," says Patricia Willems. She is executive director of Community

Health Partners, which contracts with insurers on behalf of the NCH Healthcare

System as well as for members of the Southwest Florida Physicians Association,

an independent physicians association that represents most of the physicians in

the county, including those associated with NCH.

Managed

care itself, originally designed to cut costs, has driven up not only

utilization but also costs, says Jerry Elliott, director of sales and business

development for Lee Memorial Health System as well as president of the

Southwest Florida Business and Healthcare Coalition. Furthermore, consumers

started demanding more of their HMO plans. In response, they started receiving

more benefits and in some areas, including Florida, HMOs were required to

include additional benefits. These mandated benefits also added to the cost of

HMO plans.

Employers

end up absorbing those costs, whether they benefit from the mandates or not.

Providers

have been negotiating higher rates from insurance companies, which ultimately

shows up in premiums, so employers also indirectly absorb costs from providers

caring for those who cannot afford to pay. Hospitals must provide the care and

they pass the costs on-- partly through insurance--to those who can pay.

On the

other hand, insurance companies try to negotiate discounted rates from

providers. "Providers are no longer willing to deeply discount services,

and there are a number of reasons for that,"says Marti Van Veen, director

of business development for HCA’s Southwest Florida Regional Medical Center.

One is "what the physicians tell us is the ‘hassle factor’ in dealing with

managed care." They have to hire more people to deal with authorizations,

follow-up on nonpayment or incorrect payment of claims.

Pharmaceuticals

Not to

be underestimated in the rising cost of health insurance are skyrocketing

pharmaceuticals prices.

"Pharmaceuticals

are a big piece of the medical expense pie," says Torgersen of Blue

Cross/Blue Shield of Florida. "We’re seeing pharmaceutical increases of 20

to 22 percent. That makes up about 17 percent of the total cost of providing

care."

"Prescription

drug costs are just going through the roof," says Rich Robleto, bureau

chief of Life and Health Forms and Rates at the Florida Department of

Insurance. "There are continuous new prescriptions on the market that are

more costly. ... We’re seeing drug trends in excess of 20 percent per year, and

they’re becoming an increasingly significant proportion of the health care

rate.”

More

drug therapies are available, Torgersen said, and consumers — often spurred by

television advertising — go to their doctors requesting and expecting those

drugs. And, according to some reports, “people are taking more drugs,” he adds.

“A few years ago, the average number of prescriptions per person was five. Now

it’s double that.”

Guaranteed-Issue

Issues

In an

effort designed to reduce the number of uninsured people in the state, the

state legislature in the early 1990s passed a law that required “guaranteed

issue” of coverage. “Insurers are required to offer all health benefit plans to

small business employers, with one to 50 employees, on a guaranteed-issue

basis,” says Julianne Talley, executive director of the Florida Small Employers

Health Reinsurance Program. “What that means is the policy must be issued

regardless of the employer’s or employee’s claims history, preexisting condition,

or health status.”

That,

in effect, eliminated the carriers’ ability to balance their risk by charging

more of those who require more care.

In

addition was the “portability” requirement, so that when someone switches

companies, a new carrier cannot put someone through another waiting period for

a preexisting condition.

The

Small Employer Health Care Access Act was intended to help small businesses,

Talley says. “It gives the consumer a little more buying power. What it did is

... allow the consumer to comparative-shop. They provide guaranteed-issue plans

so that Joe Florida would not be denied coverage for preexisting conditions.

That’s really the purpose of the program.”

“Years

ago we had to worry about, when you move a group from one carrier to another,

was anybody sick,” says Annette Fink, an independent agent. The guaranteed

issue eliminated that worry as well as the worry that the entire group could be

declined because of some member’s health situation.

But

with the new laws, “an employer could have 10 people who were the

poster-children for health and wellness and they would pay the same amount as

the next guy, who has 10 employees who are the absolute opposite,” says

Elliott. “The other thing that happened was a lot of creativity on the business

side. Individuals who couldn’t get insurance would create a shell of a company

to get group rates.”

That

legislation opened the door for those who previously couldn’t get insurance —

often because they were ill and used the coverage a lot. It resulted in the

insurance carriers “buying claims,” says Bob Whitlock, president of Southwest

Florida Insurance Associates, Inc., a Blue Cross/Blue Shield of Florida agency.

“All these companies are in business to make a profit and if they can’t make a

profit because of the amount of premiums they’re collecting compared to the

amount they’re paying out, they’re going to charge more money.”

Costs

to Carriers

The

escalating costs are one thing, the ability to recoup those costs are another.

Insurance carriers need approval from the Department of Insurance to raise

their rates, and some say that approval just hasn’t been forthcoming in terms

of the small group market.

“An

insurance company would go to the State of Florida Department of Insurance and

say ‘Gosh, we’re losing money. Here’s what our numbers look like; we need to

adjust our rates by 10 percent.’ The regulatory agency, trying to protect the

consumer, says ‘No, we’ll give you 2 percent,’” says Elliott. As a result,

“insurance companies have continued to leave the state of Florida over the last

five years at pretty record-setting paces.”

That’s

what has happened with American Medical Security. AMS continues to offer

individual insurance in Florida. But it is withdrawing its small group

insurance coverage “because of a history of an inability to get rate relief —

permission by the state to get price increases on a product,” says company

spokesman Cliff Bowers. “This in the face of rapidly escalating health care

costs, particularly driven last year by pharmaceutical costs,” he adds.

Different

states have varying degrees of regulatory control, but “Florida is one of the

most difficult ones. In many states, they allow the economy, the free market

system, to more properly control rates,” he said. “Believe me, Florida was a

very important state for us. We would have preferred to have stayed viable.”

Last

year, the Florida legislature eased the regulations a bit for insurers.

“Carriers

have argued that there has been a lot of abuse in one-life groups, which causes

overall small group rates to increase,” Robleto says. New legislation limits

the time period one-person groups can enroll and what a carrier has to offer

them.

New

regulations also allow carriers to consider a person’s claims history. Before,

age, gender, and the group’s geographic location determined rates. Now, Robleto

says, “they can consider the claims experience of that group, they can consider

the health status of the members of that group, and they can increase (or

lower) the rates as much as 15 percent over the average rate.”

Competition

Dwindles

As

insurance carriers have left the state, competition has declined, particularly

in smaller markets such as Lee and Collier counties.

Robleto

says he still sees plenty of competition in the small group market; the number

of carriers has decreased because of mergers and because of efforts to weed out

carriers that were licensed but not active in the state. If it has declined, it

might be because carriers don’t make it financially viable for agents to sell

those products, he adds.

But in

Southwest Florida, the number has indisputably dwindled, many say.

“That

would be an understatement. ‘Evaporating’ is probably the word you’re searching

for,” says Charles Ingram with a laugh. Ingram is director of sales and

marketing for Smart Payroll Solutions, a professional employer organization

that handles such administrative matters as payroll and benefits packages for

small businesses.

“There

used to be seven, eight, maybe even 15 carriers. I’ve watched that hit the

skids to where we have two or three adequate players in the marketplace,” he

says.

“Going

back about seven years ago, if you were an employer with more than 10

employees, I could probably get you a dozen proposals,” says Jane Stephens, an

agent in the employee benefits division at Oswald Trippe & Company, Inc.

“Today, for that size, I could get you three.”

Collier

County

In

Collier County, competition has been even more scant than in Lee County.

Larger,

metropolitan areas with numerous hospitals are more likely to have more

insurance carriers because they have more providers to contract with, says Bob

Whitlock. Insurance companies can promise to bring a hospital more patients in

exchange for discounted rates, but in Collier County, patients go to the only

health care system that has been available, so carriers have less bargaining

power.

Blue

Cross/Blue Shield’s HMO has been popular in Lee County, the Whitlocks say, but

they can’t sell it in Collier because there is no provider network in Collier

for that product.

NCH

contracts with Florida 1st Health Plan’s HMO, says Willems, of Community Health

Partners. It has not contracted with one of the larger HMOs, she says, because

“there hasn’t been an interest from our employers in an HMO. ... In order for

HMOs to be successful, you need to have a certain number of members enrolling

in them, and that means that the large employers would have to embrace the

HMOs. That just hasn’t happened here.”

Limited

insurance products available in Collier County means access to health care can

be difficult if NCH doesn’t carry your plan — a situation employees at Suncoast

Rehabilitation and Aquatics are in, says group director Angela Valvo Collins.

Former owner of the company, she recently sold it to Physiotherapy Associates,

a national company with an Aetna PPO plan. That plan doesn’t have a network in

Collier County, and she hopes that the opening of the new Cleveland Clinic

Florida hospital will change that.

“In

Collier County, plans are very limited and managed care has not penetrated,”

says Jackie Weder, director of marketing with Cleveland Clinic Florida.

Hospital officials are in the midst of negotiations. “I know they are looking

into all of the avenues because they do want to (reach) as many people as possible

within that market.”

As a

health care provider, Valvo Collins knows both sides of the insurance-provider

story.

“The

reimbursement for this particular plan is so poor to physicians and hospitals

that nobody wants to enter an agreement, so we have to go to Lee County to

access our care.” That means taking a few hours off of work and, in case of a

sick child, those appointments cannot always be planned.

Employers

Look for Alternatives

Insurance

rates have probably doubled within the past five years, say the Whitlocks, of

Southwest Florida Insurance Associates.

“It’s

not at all unusual to see 30 to 40 percent, depending on the makeup of the

group,” Ingram says. “You can’t be crushed by seeing a 10 to 20 percent

increase, because that means you’re on the lower end.”

If it

goes much higher, it likely has to do with the group’s members.

“There

are a number of things that affect rates that even get way beyond us,” says

Robleto of the Department of Insurance. “We could approve an overall 15 percent

increase in rates,” but what happens at the group level can add onto that

increase — maybe turnover in the group brought in older members, or more women,

or perhaps members have had more claims.

“Our

fear is that (financially) marginal employers are no longer going to be able to

afford health insurance,” Bob Whitlock says. “It may be that one of the first

things they do is get rid of their employee benefits, and there we go with more

uninsured people.”

For the

most part, employers won’t drop their insurance benefits in such a tight labor

market unless they’re facing lay-offs anyway, Ingram says. “If you get rid of a

major medical plan, what you’re at risk of doing is chasing out the quality

people you need in order to do the profit-making part of your business.”

Jill

Tyrer is a Cape Coral-based freelance writer and editor.