When Gerald Roscoe started his general contracting firm in Lexington, Va., two years ago, one of the expenses he decided not to take on right away was health insurance. He said he knew that by offering it to prospective employees he would be able to attract better candidates, but the high cost of group and individual insurance plans forced him to put the expense off until the company had more money in the bank. He intended to purchase a plan for himself later this year and set up a group plan for his employees next year.
But earlier this month, Roscoe's insurance agent informed him that Blue Cross/Blue Shield of Virginia would be selling a bare-bones plan covering only basic preventative health measures and with an annual payment limit of $50,000 per employee. The premiums cost about a third less than those on other insurance plans he had reviewed.
Blue Cross/Blue Shield is able to offer this plan because of a new law that went into effect this month in Virginia. The law allows insurance companies to market cheaper group plans, that do not cover the list of mandated benefits in the state, to corporations with fewer than 50 employees. Virginia has 20 mandated benefits, including visits to an optometrist and mammogram screening. Maryland has the highest number of mandated benefits, requiring 35 specific benefits in every plan. By requiring every policy to cover such services, it increases the demand for certain services and drives up the cost of insurance.
"You like to offer people and yourself benefits to attract good, qualified, responsible people," Roscoe said. "The only way to maintain a reputation is to hire good people ... Now I can attract people and say we pay health insurance and do it without going bankrupt on the idea."
A Virginia legislative subcommittee on healthcare, which worked to pass this law, estimated that 35 percent of the people employed at firms with 51 employees or fewer do not have insurance. Virginia is the second state to enact such legislation, but many states are considering similar proposals.
Maryland is considering several measures including one like Virginia's allowing insurance companies to market limited plans to small companies. The District, which mandates fewer benefits anyway, is considering a bill that would mandate minimum insurance coverage for all employees.
Most major expenses hit a small business harder than a large one, but the high cost of insurance is twice as deadly because rates rise quickly and small companies do not have bargaining clout with insurance providers. John Galles, executive vice president of National Small Business United, said that premiums paid by small businesses average 40 percent higher than those paid by large firms.
David Sverduko, who runs an organic buffalo farm in Craig County, said he intends to buy Blue Cross/Blue Shield's new plan to cut his costs. Before the new plan was available, he couldn't find a company that would write a group plan for himself and his four employees. He bought individual plans for each worker, but the plans continued to rise in price. Last year, one employee's policy went from $239 to $551 a month. Although Sverduko said he never considered cutting off an employee's insurance, he was starting to think about drastic action.
"They can't keep going up that much or what are you going to do?" he said. "What can you do if you've already told somebody you're going to pay for it? If somebody new came to me then maybe we'd do something different."
NSBU's Galles said the Virginia law was "a huge step in the right direction." Small-business lobbying groups traditionally oppose any mandates that increase the amount of insurance that companies have to provide.
Galles said the ideal state system would require companies to buy insurance to cover catastrophic illnesses, with individual employees paying for basic for basic preventative care and whatever other medical treatment they choose to buy.
"If you expect insurance to provide for every first dollar expense, people are going to go out and create that expense simply because it's available to them," he said. "We've grown to expect that whatever we want out of health care, the insurance companies are going to pay for."
With skyrocketing premiums, many small companies are choosing not to provide health insurance to their employees, leaving them unable to compete for qualified employees. "Our work force is not growing like it once was," Galles said. "Competition for workers is going to be increasingly tight in the next ten years, and small businesses will have to offer competitive benefits," or lose out to larger firms.