Healthcare Coverage - Impact on Small Business

Source: money.cnn.com/2009/01/26/smallbusiness/health_cure.fsb/index.htm

Impact of rising HealthCare premiums has been sever on small businesses is severe. -->

• Small businesses typically pay 18% more for health insurance than big companies, which can use their purchasing power to drive down the cost of coverage, according to a study by the Commonwealth Fund, a health policy research foundation.
• And the number of small firms that provide health insurance to their employees has been shrinking every year: 59% in 2007, down from 68% in 2000, according to the Kaiser Family Foundation.
• Of the 46 million uninsured in the U.S., 27 million are small business owners, their employees or their dependents.
  

Rich Gallo says he can't afford to provide health insurance for his nine employees. For a long time he put off buying insurance for himself, figuring he needed time to shop carefully. - Medical care related to Gallo's heart attack cost $200,000, which was paid by the state welfare department, a foundation affiliated with the hospital, and donations from Gallo's church.

Trends in Insurance Cover

• Premiums on group policies have soared by as much as 30%, on top of double-digit increases in each of the past five years.
• Coverage is shrinking.
• Due to insurer consolidation, policy choices are more limited than ever.
• And in a seller's market for insurance, small business owners have little room to negotiate prices or terms.

The escalation of the health-care crisis couldn't come at a more difficult time. Sales and profit margins are dwindling amid a weakening economy and a credit crunch.--> As a result, companies can no longer pass higher health-care costs on to their customers.

Many small busines owners are wrestling with tough issues such as --> "Do they lay off some workers in order to provide coverage for the rest?"

Policymakers will probably exercise caution in changing a system (HealthCare) that accounts for 16% of the U.S. economy. Many powerful interests will have their say in crafting legislation, including (but not limited to) insurers, state regulators, doctors and the drug industry.

Proposals range from

• eliminating employer-based health insurance and requiring all Americans to buy plans through state-run agencies, to
  
• lowering the cost of insurance by allowing employers to join insurance associations that pool risk across state lines.
  

"Insurance costs are a big disincentive to an entrepreneur."

Some innovative ways to cover themselves and their employees:

1. With soaring monthly premiums, the company along with its broker engaged in a complicated dance they call the shuffle. It involves switching insurers almost annually to qualify for low introductory premiums. Cole does get lower premiums - he's had eight insurers in the last 10 years - but at a price: He spends six to eight hours each fall filling out new insurance forms.As monthly premiums climbed the employer switched to a policy that primarily covers medical catastrophes - but there's a catch. Some ailments are and medical problems are considered pre-existing conditions and aren't covered under the policy.
2. In some states small firms have banded together to qualify for lower group rates on insurance. In Cleveland, for example, companies with 500 employees or fewer can buy health insurance through the Council of Smaller Enterprises (COSE), the partner of the regional chamber of commerce. Rates are about 8% lower than on the open market. Some 14,000 companies participate in the pool, which dates back to the 1980s. But Cleveland's experiment has not been widely imitated. Pools are difficult to organize and costly to administer. And insurers are less motivated to participate now that there's less competition in the industry.
3. Insurance woes are forcing many entrepreneurs to rethink their business plans. By enrolling in one course (university course) each semester, the employer (individual) is qualified for low-cost student health insurance with an annual premium of $4,000 and a deductible of $250. (Her annual tuition bill is $2,200.)
   
4. A content creating company has moved from full time employees to freelance contractors.
5. Many small firms impose long waiting periods before new hires become eligible for health coverage.
6. For highly skilled workers (woodcutters, artisdans, carpenters etc...) some small businesses pay out of pocket for medical costs. Employers who buy health insurance can pare costs in several ways.
   
7. Some pressure employees to switch to generic drugs, take preventive measures during flu season, and limit doctor visits for colds and other minor maladies. Others have tried to lower insurance costs by putting a price on vice - penalizing unhealthy behavior such as smoking and overeating. Sixteen percent of the nation's largest employers make workers who smoke contribute more than nonsmokers to cover health-insurance premiums, according to Mercer, a global human resources consulting firm.
   

"People put pedometers on their dogs to log mileage and did all sorts of crazy things to win the prizes - anything but exercise or lose the weight," says Doug Short, CEO of BeniComp, which crafted the cost-reducing plan for Independent Alliance. "Now people have to take responsibility for their health."

Anecdotal evidence aside, it's unclear that wellness programs make a major dent in health-care costs. And despite the increasing popularity of this approach, it has another downside:

TMI - That's "too much information" - about workers and their private lives. Some business owners confess they are uncomfortable discussing personal health issues with workers or sponsoring contests that require embarrassing weigh-ins reminiscent of The Biggest Loser.

2009 - What it holds for entrepreneurs and small businesses

Source: http://money.cnn.com/galleries/2009/smallbusiness/0901/gallery.smallbiz2009.smb/index.html

The year 2008 ended on a bleak note for all industry, specifically the small industries faced issues such as slow sales, frozen credit from banks, costs related to healthcare soaring and the credit card debts getting higher. What does 2009 hold :

1. 2008 saw the cost of healthcare rising (by 5.7% per employee), and healthcare costs were the top issues for small and medium business enterprises. This year (2009) it is expected that healthcare reform takes center stage - President Obama is endorsing the forming of national health insurance fund that small businesses can have access to. These pools can negotiate better rates (as a collective) vs individuals. 2009 will see a beginning with more impact to be observed in 2010.
   
2. As a fallout of the credit crisis, access to credit for even credit worthy businesses became an issue. Businesses responded cutting back on expansion plans , downsizing staff and focusing on other ways to increase the cash flow. The loan-guarantee program backed 30% fewer small business loans in 2008 than it did the year before. Banks profit not only from the interest on the loans they give, but by bundling these loans in the form of 'asset backed securities' which are traded to investors. With the value of many 'asset backed securities' dropping last year, the demand for this instrument declined, with no secondary 'Asset Backed Securities' market the banks stopped making even primary loans. This year (2009) it is expected that TALF (Term Asset Backed Security Loan Facility) which is instituted by the federal reserve, aims to make TALF (loan) available to 'Asset Backed Security' buyers, with the hope of spurring demand for 'Asset Backed Securities'.
   
3. Tax cuts as a means of stimulating spending. Though the tax cuts were to expire this year (revert to pre bush era), president Obama will hold off on raising the taxes, instead would give tax break on income (the earners share only and not extended to employer share).
4. Layoffs & hiring. Last year small businesses were the last to layoff. Last year large firm announced massive layoffs and these are expected to continue this year as well. While small businesses did not initially lay off until October when the recession became worse. From a small business point of view, layoffs mean, letting go of family members, relatives and longer working hours for the people that are left in the job.
5. Credit card. Last year as the credit crisis worsened, card companies began to reduce exposure limits and increase interest rates to very high levels. The federal agency stepped in with new regulations safeguarding the credit user against certain credit card company practices of increasing rates on existing balances and charging late fee without notice.
   
6. Commodities and Oil. Oil was on a roller-coaster last year seeing highs and lows in extremes. Iron & steel saw a surge in price by up to 30% while food grains also saw increasing prices. During the year a sharp decline in prices of corn, coffee and non-precious metals was also seen. this year these fluctuations are expected to continue while oil is expected to stabilize to more sustainable levels (for oil co's). Dollar is expected to fall against the yen and euro this year, due to low interest rates and the extensive U.S. government borrowing that will be necessary to cover the costs of the 2008 bailout packages. For companies that do business overseas, a falling dollar leads to increase in costs, and thus the price of raw materials in the U.S. tends to move opposite the direction of the dollar, which means more price hikes may be looming for commodities.
7. The share of the dollar. Reduced credit availability (both consumer and institutional) and rising unemployment concerns, led to curtailed spending. So it may seem that Americans are for the first time saving & not taking more debt. Consequently holiday retail sales took a major hit as spending reduced. This year the story would continue and consequently we would see a large number of businesses (retail) shutting down, the ripple effect will impact store suppliers and also impact small businesses adversely.