Lucia Kane, who owns a Falls Church spa, spent the last three weeks fretting about health insurance instead of doing oatmeal facials and full-body wraps.

She estimated that she lost $3,000 in revenue while she pored over various options for health care for her 20 employees. None of the plans was ideal, and all were pricey. Last year, after costs went up 30 percent, Capelli Hair and Skin Spa switched insurers and Kane agreed to contribute $50 of the $380 monthly cost. But five of her employees still decided they couldn't afford the insurance. When one of them got sick, Kane found a free clinic for the employee and drove her there.

This year, Kane is bracing for another increase. "It's a panic; we're all nervous about it," Kane said. She said she fears that if benefit costs rise significantly, her employees will leave for bigger companies that can offer better deals.

In 2005, health insurance is expected to cost at least 10 percent more -- marking five years of double-digit increases. A diminishing number of small businesses can offer health coverage to employees, according to studies by the Henry J. Kaiser Family Foundation, a nonprofit group that researches health care issues. The group found that 63 percent of small businesses offered health care coverage this year, down from 68 percent in 2001.

The National Association of Women Business Owners found that 50.1 percent of their members offered health insurance this year, down from 57.3 percent two years ago.

Small businesses sometimes have less profit to cushion the blow of higher benefit costs, and lower-paid workers often who cannot afford the increases, experts say. In addition, many large companies self-insure, something small companies can't afford to do. And rates are more volatile if the risk is spread over a small pool of people; a single sick employee one year can significantly increase the per-person cost of insuring a small business the next year.

"Small businesses very much feel up against the wall now," said Drew E. Altman, president and chief executive of the Kaiser foundation. "They are trying to hang in, if they can, by shifting more cost to workers, cutting back on family and dependent coverage, and lowering wage increases." And some companies don't offer any health care coverage, he said.

Many small-business owners are struggling with the issue now because many policies are up for renewal in October and November. Some, such as Juanita Ohanian, owner of Nebel Printing Inc. in Rockville, face three tough options: switch carriers, cut benefits or ask employees to pay more.

Ohanian, who said she spends 6 percent of her sales on employee health care, recently was told that the cost of insuring each of her eight workers would increase 24 percent, to $234.57 a month, next year.

She said that if she cannot find a much cheaper plan, she may ask the employees to pay more of the premium -- which would wipe out recent raises.

She is also considering switching to a health management organization that offers limited services, or cutting the life and disability insurance she provides for employees.

Over the next several weeks, she expects to spend the equivalent of an entire workweek considering her options.

"It's not going to go over well with employees, I'm sure," she said. "Some of these people have been here 20 years. I care for them and for their families. I'm concerned they're going to have to pay more, but something's gotta give."

The owner of the Goddard School, a new preschool in Leesburg, said he's coming to the same conclusion. Just before opening in April, owner Michael McGuinness said his broker quoted him a $2,828-a-month premium for his 12 employees under an Aetna preferred provider organization plan, which negotiates lower rates with many doctors and hospitals. But within weeks, Aetna quoted a different price -- $5,299 a month -- after evaluating the medical histories of the employees.

"The broker told us that one spouse of an employee had a history of diabetes and two teachers suffered from migraines," McGuinness said. He attempted to switch providers in late summer, but after shopping around he found that other plans cost more.

"Maybe we'll move to an HMO with higher co-pays and deductibles, stuff like that," McGuinness said. "That's one option. Another is to cap our liability, telling the teachers when they first join us, we'll pay X percent of the medical premium up to a maximum of X per month."

Not all small businesses are cutting back. District-based Maya Advertising & Communications Inc. this year started paying all of its employees' health-insurance costs, instead of just 60 percent.

"I can't afford it, but I can't afford not to do it," said Luis Vasquez-Ajmac, president of the 15-person company. He said the firm's growth in recent years has outpaced the rising cost of health care. He also pays $50 a month toward gym memberships for his employees.

"Does it affect the bottom line? Yes," he said, "But I want people there all the time. There's a return on investment. If I do this, people work harder and they get new business."

For many small businesses, however, business growth has not covered rising health care costs. Members of the National Federation of Independent Business and the National Association of Women Business Owners ranked health care costs as their top public-policy concern. President Bush's health care plan includes a tax credit proposal to help people buy private insurance and encourage employers to offer health savings accounts. The proposal also would allow small businesses to join national association health plans.

Democratic presidential candidate John F. Kerry's plan includes tax credits to encourage small businesses to offer insurance. Kerry also wants to expand public programs such as Medicaid to cover some of the uninsured, including the children of employees who don't have dependent benefits.

Brent D'Agostino, a Virginia insurance agent, said that so far this year, more than 80 percent of his 125 mostly small-business clients asked him to look for alternative plans. Even his employer, Armfield, Harrison, & Thomas Inc. in Leesburg, recently switched providers to keep costs down for its 100 employees.

"It doesn't benefit these employers to switch carriers every year," D'Agostino said. Switching is a hassle for employees, who may have to deal with different doctors, different forms, new identification cards, and different rules for coverage, he said.

In recent years, D'Agostino starting sending monthly newsletters about obesity, diet, heart disease and diabetes to try to keep his clients' employees healthy, which in turn keeps health care costs down. "I think that's more important as we see rates go through the roof."

Kathy Albarado, president of HR Concepts LLC, a Herndon human resources consulting firm that advises small businesses, said many companies are trying to figure out to how cut health care costs without hurting employee morale.

She tells them to meet with employees and collectively decide which options to choose. If employees feel they have some say in the decision, they are likely to feel less resentful. Even if companies can't offer salary increases to offset the additional burden, they might be able to offer flexible work hours or time off, she said.

"Let the employees have input, because that way, even if the rate goes up, at least they have a choice," she said.

For the coming year, some companies are considering new alternatives such as health savings accounts, which were enacted in the Medicare Modernization Act of 2003, and introduced this year. The act allows companies or employees to make tax-exempt deposits into accounts that employees can use to pay for medical expenses.

Once that money is spent, the employee must pay some money out-of-pocket. The deductible is at least $1,050 and can be higher, depending on how the account is designed. The yearly maximum out-of-pocket cost is $5,000 for an individual or $10,000 for a family. After that, insurance will cover medical bills. Money left over in the account carries over into the next year, and stays with the employee even if he or she switches jobs.

The upside to such plans is that the monthly payments are lower, and the employee decides how the money is spent. But if the employee gets ill or gets into an accident, out-of-pocket medical costs can reach several thousand dollars before the catastrophic coverage kicks in.

Many small employers don't have the staff to administer such programs, the Kaiser foundation's Altman said. Small firms don't have benefits managers or human resources experts. "They just don't have the structure or capacity."

Some employees are looking outside their company plans to cut costs. Although Old Dominion Brewing Co. in Ashburn pays 75 percent of its workers' individual premiums,10 of the company's 37 employees, including its owner, Jerry Bailey, don't participate in the company plan because they found cheaper coverage elsewhere.

Dave Hennessey, 37, the head brewer at Old Dominion, has found another insurer to cover his wife and son. "It cost us almost $500 a month to cover our family through the brewery's plan," he said. "And that was before the premiums went up this year. I just couldn't afford to continue to do that." The new plan for his wife and son costs $120 a month less, he said, but it comes with a $5,000 deductible for catastrophic coverage.

Yusuf Kara, 62, a longtime Capelli hairstylist, said that if his $330 premium approaches $400, he will have to choose between paying his mortgage or getting health care coverage next year.

"I bite my nails over it every day," Kara said.

Staff writers Michael Barbaro, Bill Brubaker, Amy Joyce, Ellen McCarthy, Annys Shin and Krissah Williams contributed to this report.

Stylist Lisa Thomas at Capelli Hair and Skin Spa says she has no health insurance.Lucia Kane, left, helps Evelyn Appleton schedule an appointment. Kane, owner of Capelli Hair and Skin Spa in Falls Church, said her receptionist left for a job with better benefits.