2009 Small Business Guide
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small business
Finding small business health insurance

"Everybody right now is price conscious," says Scott Leavitt, president of the National Association of Health Underwriters. Regarding health insurance, that means some employers are eliminating jobs, switching plans or carriers, dropping coverage, raising deductibles or asking employees to pay more of the costs themselves.

Business owners fear that, without a good insurance package, they can't compete for top talent, says Norman Scarborough, coauthor of "Effective Small Business Management: An Entrepreneurial Approach" and professor of business and entrepreneurship at Presbyterian College in Clinton, S.C. At the same time, with costs increasing, "a lot of them are saying 'we just can't do it,' and cutting it," he says.

For many small businesses, unlike large companies, health insurance costs affect more than just the bottom line. In some cases, it affects whether they can afford to hire additional people.

To justify even the cost of adding another employee, Friedman says, the person has "to be stellar."

Go it alone or buy for a group?
Other than price, the options have changed little in the past few years, says Robert Laszewski, president of D.C.-based Health Policy and Strategy Associates, a consulting firm. "The market is fairly fixed."

For sole proprietors, the answer to the health insurance question often means going to an agent or broker for an individual or family policy.

"There are individual health insurance options in all states," Holland says. "That would be the option available" for sole proprietors, she says.

But the entrepreneurs face some challenges if they have any pre-existing conditions. In those instances, their coverage options may be limited, more expensive or virtually nonexistent.

"If you're moderately healthy, there's a good possibility you can get a good rate in the individual market," Austin says. "If you're sick, it's expensive."

Healthy business owners likely will find a wide range of choices. But even with a good rate, if they're used to someone else footing the bill, they're probably in for sticker shock.

Depending on the state, the process may not be that different for group buyers. In some states, the age or health of your group will matter more than in others. Often, coverage for small groups is just as expensive as the individual market.

"We've never had a problem finding insurance," Friedman says. "But since we've been in business, the cost keeps going up every year."

A group of employees will have definite needs and preferences. And, in a small company, where each person plays a vital role, meeting those needs is even more important.

"You have to take everyone's needs into account," Friedman says. "And that can get tricky."

When you’re deciding how to meet your employees’ needs, that's also a good time to ask them about their expectations on premiums, Tyson says. "You should get a feel for how much of your premium cost they are willing to pay," he says.

The cost of insurance is a bigger problem for small business employees, too. Sixty-one percent of employees at small companies shoulder at least a quarter of their premiums (or more), compared to 40 percent of employees at large firms, according to the Kaiser/HRET survey.

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