The High Cost of Health Insurance.

It's becoming increasingly expensive for small businesses in Alaska to provide health insurance benefits to employees.

Offering good health insurance benefits is one of the best ways companies can ensure their employees' loyalty. Gretchen Boone, director of Gold Creek Child Development Center in Juneau, said that's the reason she offers health insurance.

"We can keep employees longer by offering health benefits," she said. "In child care, it's unusual to get (benefits)."

Unfortunately for many small businesses, health insurance is difficult to afford and employees oftentimes cannot buy insurance on their own; however, this doesn't mean that there are no options. By understanding the health insurance problem, exploring the types of insurance available, finding out what their employees want, and selecting an option within their benefits budget, even small employers may find a way to offer health coverage to their employees.

"Usually, the impact on the budget is (the employer's) biggest complaint," said Jim Dunlap, owner of the Fairbanks-based Dunlap Agency, an insurance brokerage firm.

Since insurance providers require employers to pay a minimum of 50 percent of the premium, they feel the pinch of high rates just as much as their employees do. Some plans have gone up 50 percent or more annually, in part due to the high cost of medical care in Alaska.

"Claims are 15 percent to 20 percent higher (in Alaska compared to other states) because (medical) costs are higher," said Jeff Davis, executive director of Blue Cross/Blue Shield of Alaska.

A Growing Exodus

Apparently the insurance companies haven't been listening to complaints of rising insurance premiums; they've been leaving Alaska.

"We used to have quite a few companies selling (insurance) here," said Roberta Goughnour, owner of 3R Consultants LLC, a human resources consulting company in Anchorage, "but now, there are a very limited number of insurers offering (employee health benefits)."

Alaska's large number of small businesses is one reason why, according to Nalani Kala'I, medical benefit manager for Hagen Insurance Inc. in Anchorage. "Alaska is built on small businesses," she said, "and that's not what (insurance companies) want."

Janita Lunsford, owner of Superior Machine & Welding in Anchorage, said that she has problems getting enough of the employees at her shop to sign up for health insurance due to the high cost. "Insurance companies seem to like really large groups," she added.

Goughnour of 3R Consultants agrees. "The issue is population," she said. "The make-up of the market--small businesses--drives rates up. There's also a lack of competitiveness."

Davis, of Blue Cross/Blue Shield, takes a more corporate approach to explaining the turnover of health insurance companies and the high expense.

"There's a continuous pattern of carriers coming in and exiting," Davis said. "Alaska has a relatively small population. When you dissect that population and pull out those eligible for coverage under Medicaid, Medicare, the military, the government and the uninsured, the (remaining people) are about 250,000."

Because insurers new to Alaska research to ensure a profitable market, many find that it isn't worth it to expand north. Others, Davis added, find out after they've expanded that "the return on the investment might not justify the investment," he said. "You go where the people are and where the members will be."

When they realize that their start-up expenses will not be met, these insurance companies leave for more highly concentrated areas where there are plenty of eligible people to insure.

"The demographics have a lot to do with the lack of insurance companies in Alaska," said Goughnour of 3R Consultants. "We've never had any HMOs because the insurable population is too small." Currently, there are only 10 insurance providers offering services in Alaska: Blue Cross/Blue Shield, Aetna Life Insurance Co., Principal Life Insurance Co., Starmark/Trustmark, United Healthcare, Conseco Medical Insurance Co., Fortis Benefits Insurance Co., PFL Life Insurance Co., Prudential Insurance Company of America and Pioneer Life Insurance Co.

The statewide economy also makes a difference in what small employers offer. In the Denver, Colo., metropolitan area, for example, the tight job market virtually requires small businesses to offer excellent benefits packages, no matter what the cost. If small employers don't offer fully paid insurance with $10 co-pays, no deductibles, plus vision, dental and prescription drug coverage, they will have an even harder time competing for good employees. Some employers in the region are even offering health insurance programs for employees' pets to attract more applicants.

The Small-Business Dilemma

Alaska's small businesses must compete against government and large employer plans. "They set a rich standard for benefits," said Blue Cross/Blue Shield's Davis. "It's a tradeoff between the richness of the benefits and the cost."

Lunsford, of Superior Machine & Welding, maintains a policy with a low $100 deductible to stay competitive and attract quality employees. The cost for that coverage, which is aid in part by the employees, is 1,700 per month. Coverage is for three employees and two dependents.

"The rates are sky-high," she said. "The price is ridiculous anyway, so you might as well get (insurance) you can use. I'd like something like what they provide the school district employees or the federal government--full coverage on everything."

Some businesses say they can't even afford a basic plan.

"We're too small to do a (health care) plan," said Ann Clark, 3R Consultant's office manager. "It's not cost-effective."

Some employers encourage employees to purchase their own insurance and offer to reimburse employees for a portion of the health insurance they buy, according to Kala'I of Hagen Insurance. "From law firms to marketing offices, that's what they're doing to stay competitive. If an employee leaves, they can take their plan with them."

However, employees who have ongoing health problems may not be able to buy their own insurance. Group plans usually accept everyone in the group. People buying insurance individually usually must answer a long list of health questions, some of which can jeopardize their ability to obtain insurance.

Clark, for example, has been turned down for a private health policy because she's diabetic. "I'm still on my COBRA from (my former job) in California," she said.

For now, Clark's current employer, 3R Consultant, is allowing her to make COBRA payments pre-tax to ease the expense; however, "I don't know what we'll do when the COBRA runs out in a year," said Goughnour.

One possibility for Clark is Alaska Comprehensive Health Insurance Association (www.achia.com). A state law created this nonprofit organization to ensure that Alaskans, like Clark, can get adequate health insurance if there is no other way for them to obtain insurance.

ACHIA is only for people who have been denied adequate insurance because of a health problem; it does not consider the insurance affordability.

ACHIA's deductibles are $500 and higher; however, this should not be a drawback because the applicant is seeking ACHIA because of a health problem.

Joining Forces

Professional groups can provide a means for small employers to get the benefit of a large insurable employee population. Professional groups provide insurance to numerous employers in the same industry by forming a trust or union-type of organization. Some insurers require the formality of having employees receive their paychecks from the professional organization rather than the actual, direct employer.

"I think professional groups are one avenue more companies will have to use if private insurance doesn't change," said Goughnour of 3R Consultants.

In the meantime, employers do have several options for reducing benefit costs.

"If employers want affordability," said Blue Cross/Blue Shield's Davis, "they need to match the type of plan they buy to what they can afford."

The size of a company doesn't matter.

"There are small benefit plans available down to the size of two (employees)," said Dunlap of the Dunlap Agency. While state law requires insurance companies to charge the same rate per person whether the business has one employee or 50, practically speaking, it is usually more difficult for smaller businesses to afford benefits. "The cost is a problem with smaller group sizes and you don't get as good of coverage," Dunlap said.

To save costs, many small employers buy plans with high deductibles. "Some have $2,500 or $5,000 deductibles," said Kala'I of Hagen Insurance.

"This is more like catastrophic coverage," Dunlap said of the high deductible plans.

Providing a plan with a moderately high deductible, $500, is how Boone is able to offer health benefits to her five employees at Gold Creek Child Development Center. "If we could, we'd like to have a lower deductible or co-pay," she said, "but it's way too expensive."

In case of a life-threatening accident, or a serious disease, families have the coverage they need to cover large hospital bills; however, when a child has strep throat, or it's time for an annual check-up, these minor expenses are out-of-pocket until a whopping deductible is paid off.

Preferred Provider Plans

Preferred Provider Options are another way employers are fighting the battle of pricey insurance.

One disadvantage of these plans is that some may offer only a small circle of providers from which employees must choose. Many insurance companies don't have PPO networks. By contrast the Blue Cross/Blue Shield network includes 65 percent of all physicians in the Fairbanks, Anchorage and Juneau areas.

The high rate of turnover among insurance companies also makes it difficult to keep up with who's in the new company's physician network and who's not.

"When you switch from one company to another, what one covers, the other doesn't necessarily cover," said Lunsford of Superior Machine & Welding.

To avoid disrupting their employees' coverage by changing providers, employers should use well-established companies that have made Alaska their home, since companies new to Alaska continue to come and go, said Blue Cross/Blue Shield's Davis.

But as stated above, PPOs are less expensive and "don't cost the employee as much," said Dunlap.

Cost-Saving Options

Some insurance expenses can be offset by a Section 125 plan. This allows employers to set up a pre-tax, flexible-spending plan so that medical expenses are taken from the gross, not the net, of the employee's paycheck. Otherwise known as a cafeteria plan, this permits employees to receive partial reimbursement for otherwise uncovered medical expenses and employees chose how they want their benefit dollars spent.

For example, an employee can spend his money on a good dental plan to cover his daughter's braces and a lower-level health plan for himself. Or, he can buy extra life insurance because of his high-risk job and forego vision coverage. Since the employees can custom-design their plans from a wide variety of options, employees get what they want.

"Choice is good," said Davis of Blue Cross/Blue Shield. "We don't try to steer clients. We want them to choose what plan is good for them."

Dunlap of the Dunlap Agency agrees. "We usually interview the prospective client to find out what they want," he said. "We try to customize the plan to match their needs and desires. There's a real alphabet soup when you're trying to adjust plans."

Defining these needs and desires is as simple as asking.

"Small employers can do well with finding out what their employees want," said Blue Cross/Blue Shield's Davis. "If I were a small employer, I'd find the program based on (the employees') needs."

By giving employees what they want, hefty paycheck deductions will be a little easier to swallow.

Beyond choosing the benefits plan itself, Blue Cross/Blue Shield's Davis recommends employers to encourage wellness. By focusing on preventative medicine, employees will use their plan less and overall costs will go down.

"If people are healthier," Davis said, "the claims are fewer and premiums are smaller. We try to encourage our members to seek mammograms, cervical cancer screenings and immunizations for their children."

Davis also said that companies could encourage healthful living in a company newsletter, or, at very small companies, by posting health articles in a break room.

Although the savings from healthful living won't be directly reflected on a company's insurance bill, like auto insurance, a reduction in claims will help reduce the overall expense.

There's no panacea for the state's health care woes; however, employers do have plenty of options for keeping their employees healthy and happy with their health insurance benefits.

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