BusinessReport.com

Tara Brown’s four employees really are family—with one exception.

Brown, the president of Unit Design Inc., a commercial flooring installer, gave up group coverage after the company’s insurance carrier went broke and no other carrier would pick them up.

“It just got to be so outrageous,” she says. “We just told everybody to get their own insurance.”

Individual policies aren’t cheap. Brown’s sister and brother-in-law pay about $900 a month for the two of them.

And because of a pre-existing condition, Brown was unable to get an individual policy through a commercial carrier and was forced to go through a state program. Today, she has coverage with Blue Cross and Blue Shield of Louisiana and Medicare.

“That’s the good thing about being 65,” she says. “That’s the only upside I can think of.”

The national media is full of stories about small businesses like Unit Design—faced with rising health premiums and falling revenues—being forced to choose between letting employees go or dropping their coverage.

As Brown can attest, Louisiana isn’t immune from the problem, though exact numbers are hard to come by. Business owners who drop insurance usually aren’t eager to discuss it. At the same time, dropped coverage might be less of an issue here than in some other states, since a relatively few small businesses offer insurance coverage as it is. You can’t get rid of something that you don’t have.

John Maginnis, a spokesman for Blue Cross and Blue Shield of Louisiana, says only about 30% of the state’s small businesses with between 2-19 employees offer coverage. That number increases to between 50% and 60% nationally.

Still, there is some evidence that cancellations have increased.

“I talked to one of the people in our research department, and he said that presently we are seeing somewhat more small-group cancellations in 2009 than last year,” Maginnis says. “But given the data we have, we haven’t been able to establish a trend.”

It’s hard to tell whether a company has dropped insurance altogether or just switched to another carrier, and they usually don’t tell Blue Cross when it happens. They just stop paying, and that makes trends hard to track. Blue Cross has used this rule of thumb in the past: With a surge in group cancellations usually comes a spike in applications for individual policies—something it hasn’t seen.

Renee Baker, director of the Louisiana chapter of the National Federation of Independent Business, says a recent survey of members revealed that 60% of them over the previous year had considered discontinuing coverage for their employees. Several respondents had already dropped coverage.

Forty percent had asked their employees to pay a larger share of their premiums. The same survey showed health insurance to be nearly 12% of payroll on average, while employers contributed roughly 73% to employee premiums.

“That 60% considered dropping was probably the most shocking thing,” Baker says. “That is huge, because they take this so seriously. They feel like their employees are like family. You don’t have three layers of management. It’s you and them.”

Baker says small businesses have a tougher time finding good deals on coverage because they lack the leverage of big firms. And while the industry nationally has expressed a willingness to loosen standards for individual policies—such as no longer denying coverage based on pre-existing conditions—nothing has been mentioned about making insurance more accessible to small groups.

Neither does Congress appear to be pressing for such concessions. Since most people still have insurance through their employer, and more than 40% of the U.S. private workforce works for companies with 100 employers or less, many see the lack of attention to small business as ignoring a key aspect of the insurance dilemma.

Meanwhile, many small-business owners report employees often would rather have higher wages than access to benefits, Baker says.

“Some employees simply won’t take it,” she says. “I don’t know what you do about that problem.”

While NFIB opposes the idea of mandates on small employers to provide coverage on the grounds that it could impose new costs and cost jobs, the national lobbying organization is not opposed to mandates on individuals to buy health insurance.

The theory is the bigger the pool of insured, the more affordable it is for everybody, since there are more insured lives over which to spread the risk. If younger, healthier people opt out of insurance coverage and only older, sicker people carry it, the model doesn’t work as intended.

NFIB also opposes the idea of a national public health plan—currently the subject of intense debate in Congress—that would offer an alternative to private plans from the likes of Blue Cross, Humana and other insurers. The business group argues that a public plan would interfere with free enterprise and give the government an unfair competitive advantage.

Brad Thibodaux, president of A Acadian Assurance insurance agency, which has about 75 small-group clients as a well as a thriving individual-policy business, hasn’t seen small groups dropping coverage.

“But some groups are laying off some people because their business has slowed down,” he says, noting there are “tons of businesses that don’t offer health insurance to their employees, period.”

For the smallest groups, companies with only two or three employees, sometimes it makes more sense to write individual policies on each of them rather than one group policy. If one employee in a very small group policy has a huge claim, it has an impact on everyone in terms of premium rates. Not so with an individual policy.

Many of Thibodaux’s clients have moved to high-deductible health plans, which costs employers and employees less in premiums, though he’s seeing a trend returning to traditional co-pay plans—at least those that are priced competitively.

As for the culprit behind high costs, he blames “cost-shifting”—doctors and hospitals, chronically under-reimbursed by Medicare and Medicaid, charging privately insured patients more to help make up the difference.

Thibodaux also blames pharmaceutical company advertising as well the cost of medical technology and patients’ insistence on the newest and best of everything.

“They want the best care and damn the cost,” he says. “As long as they have health insurance, they want the best care.”