UPI

OLGA PIERCE

WASHINGTON, April 13

The skyrocketing price of health insurance may be costing businesses more than just premiums, health policy analysts said Friday.

"If your healthcare costs go up, you can't afford to hire that new employee or sign a lease for more space," Stephanie Cathcart, a spokesperson for the National Federation of Independent Business, told United Press International.

"It stands to reason."

U.S. businesses are the largest source of coverage for Americans, providing health insurance for 175 million people. But maintaining that coverage is quickly getting more expensive.

Between 2000 and 2006, the cost of health insurance increased 87 percent, with companies in some markets facing significantly larger increases. Companies have passed on some of that cost to their employees, but have been forced to absorb the rest.

That ever larger share of a company's funds going to healthcare costs means there is less available for other critical business needs like hiring new workers, maintaining facilities and investing in growth, according to a report released Friday by the Center for American Progress, a progressive think tank.

The report, a profile of 10 U.S. businesses of varying sizes across the country, details the effects of rising costs on businesses.

All the companies had to pay one or more people just to manage their health benefits. Large companies had one or more dedicated human resources employees working on healthcare full time, while some also paid outside consultants.

Smaller companies purchased their health plans through brokers who earn a commission of as much as 5 percent.

In addition to specifically dedicated employees, other important decision-makers took time away from their other work to wrestle with healthcare-related issues.

"There's a lot of time and money spent on these decisions," said report author Meena Seshamani, a resident physician at the Johns Hopkins University School of Medicine.
Once healthcare plans were selected, educating employees about them also took time and resources, Seshamani said.

But those administrative costs pale in comparison to just the sheer cost of the coverage itself, she said, and that has a business-wide impact.

Firms -- especially smaller ones -- altered their hiring practices, for example. Some businesses decided not to hire new employees altogether, while others changed who they hired. One of the profiled businesses, a local school district, began hiring younger, less-experienced teachers to avoid the cost of healthcare for retired teachers who are too young to qualify for Medicare.

Other businesses were forced to put off investments in new equipment, research and development or expanding operations.

The cost of healthcare also affected firms' competitiveness. The large firms said paying for healthcare put them at a disadvantage in the global marketplace, while two of the small businesses said they tried raising prices to compensate for healthcare cost increases.
All of the businesses profiled said healthcare affects many of the important decisions they make.

"Healthcare is very definitely affecting the ways businesses do business," said Blair Farwell, director of health brokerage at Resource Brokerage, a Chicago-based firm that educates insurance agents about business needs.

"Finance is saying 'Oh my God, how are we going to pay for this?' while human resources is trying to come up with a plan employees will like," Farwell told UPI.

"It's a runaway freight train."

That pressure is what has led a growing number of businesses to try changes like health savings accounts and increased cost-sharing for employees, he said.

But by far, the biggest effect that healthcare costs have is on the wages that firms offer their employees, said Larry Van Horn, faculty director of the healthcare MBA program at Vanderbilt University.

"At the end of the day all firms sell in competitive markets. They can't just increase their price or they would have done it already," he told UPI.

"For most firms, as healthcare costs increase, it will largely be offset by reduced growth in real wages."

April 14, 2007