Businesses' Health Premiums Are Rising --- Small Firms Hit Hard, With Renewals as High as 50%
After several years of relatively flat health-insurance costs, U.S. businesses are starting to be hit with a startling increase in premiums -- and small businesses are being whacked the hardest.</br></br>Premium increases in health-policy renewal notices for 1999 are running as high as 50% for some small companies, according to benefits consultants. Even medium and large companies are seeing rises of about 5%, after flat or even declining health costs in the past few years.</br></br>"Thirty days ago, the average increase already was 14% to 15%, and just since then, the average has moved into the high-teens -- and it's not uncommon now to see increases of 30% to 50%," said James Mueller, president of the employee-benefits group of Frank Haack & Associates, a Milwaukee-based health-insurance broker.</br></br>For large companies, the rise in premiums isn't nearly as painful. According to health-care consultants, the most aggressively managed health plans at large companies are seeing annual increases of between 4% and 5%, after flat increases last year. But overall, says Edwin Hustead, senior vice president of Hay Group, a benefits consulting firm, insurers "probably are going to be asking for rate increases of 6% to 7% or as much as around 10%" for 1999. And a recent survey of Fortune 500 benefits managers by BT Alex. Brown found that they expect an average 10.3% increase in premiums for health-maintenance-organization coverage. That compares with an average increase of 5.9% for 1998.</br></br>Small companies have always been hit harder than large companies by healthcare inflation, largely because their tiny employment bases pose much greater actuarial risks to insurers. In large companies, the costs of sudden medical events is spread over hundreds or thousands of workers. But in a small company, if just a few employees bear children at the same time, for example, the increased cost to the insurer for medical and hospital expenses, in percentage terms, could be enormous, and insurers try to recover those costs through large premium increases.