Small Firms Squeezed by Health Costs

When Harold Goldmeier took over the family decorating business in Chicago 22 years ago, health insurance for his employees was completely affordable.

Today, it is a backbreaking expense.

"It rises faster than any of the other fixed costs we have, whether it's property taxes, electricity, rent, anything else," says Goldmeier, of Sappanos Decorating Centers. "Health insurance is something that is totally uncontrollable for us."

Goldmeier has a lot of company.

Companies with between 10 and 49 workers face a projected 14.5 percent increase in health-insurance premiums for 2003, while companies with between 50 and 99 workers face a projected 15 percent increase in premiums for 2003, according to data from Mercer Human Resources Consulting.

Fewer Offer Health-Care Plans

Not surprisingly, small-business owners have now cited health insurance costs as their most pressing problem for four months in a row in a monthly survey.

"The outlook for the future for small business and health care is not good," says Jack Ferris of the Washington-based National Federation of Independent Business, or NFIB, which conducts the monthly survey. "The trend lines are going in the wrong direction. There are fewer of our members today offering health-care plans than offered them five years ago."

And those who do, continue to shift more of the cost to workers.

Goldmeier, for instance, recently stopped paying for an employee's family members. At Dynamic Sales Co. in St. Louis, the firm until five years ago paid 95 percent of its employees' premiums. But following a series of rate increases, it now pays only 70 percent.

And Farrell-Calhoun Paint in Memphis, Tenn., reduced benefits to cut costs after it was hit by a 30 percent increase in premiums, resulting in a 100 percent increase in employees' deductible and a 200 percent increase in the cost of name-brand drugs purchased with their drug cards.

Pulling Back on Other Spending

Other owners — 43 percent, according to a recent NFIB survey — are pulling back spending in other areas: hiring less and firing more, holding off purchasing equipment, keeping less inventory on hand.