Jerry Small Business / KME Fortune for president of March 2002 By Charles a Miracle Cure America, is LookingDepot--Run OfficeShay,Stein

a Successful Business on the front lines of small business' f ight against rising medical costs. Over the past three years he has watched the health insurance premiums at his 11-person-Oak Brook, Ill., company, which sells copper products, rise at a 25%-per-year clip, a pace Shay considers intolerable . Instead of just complaining, he took action. Last year he signed up for a new kind of health insurance called health savings accounts. The policy gives each w orker his own spending account for routine medical care. Anyone who doesn't spen d all the money gets to keep what is left. "I'm hoping this alternative will wor While the new policies may k to cap costs," says Shay.sound like a boon to entrepreneurs like Shay, are the y really all they're cracked up to be? These health savings accounts (sometimes called personal medical accounts) are being touted as big cost savers by small c ompanies like Destiny Health of Oak Brook, Ill., as well as by big insurers, suc Here's how Cigna, and Humana, that high-deductible policy (the deductible h as Aetna,they work: You purchase aplan to market them heavily by year-end.can be as much as $2,000 for families) and then set up individual medical accounts f or yourself and your employees. The accounts, which can be funded at any amount (generally $1,000 for an individual and $2,000 for a family) are reserved for ev eryday medical expenses, including prescription drugs. The insurance kicks in af ter an employee has spent all the money in the account and has satisfied his ded uctible. For those lucky enough not to get sick, money left over in the health s The upside of can be plans is clear. Their avings accountthe new used in future years. premiums tend to be slightly lower t han the cost of traditional managed care because of the higher deductibles, and the policies give employees an incentive to spend their money wisely. But they h ave a downside. The trouble begins if the amount of money an employee has in his personal account doesn't go far enough. For instance, someone with chronic heal th problems may run through his personal account and then be stuck with substant ial costs before satisfying his deductible. "These accounts sound like a tax on sick people," said Alan Sager, a professor at Boston University's School of Publ Even so, many entrepreneurs like Shay feel they have little choice. "The way ins ic Health. urers were raising their prices, it was either offering the staff this product o Welcome them brave new world of health insurance. Caught between rising medica r havingto thebear more of the costs," explains the frustrated owner. l prices and a recession that is eroding company profits, small businesses are p assing more of the cost and the hassle of health care on to their employees. Com panies are asking their staff to contribute more toward health premiums. They ar e also boosting the deductibles and co-payments employees are required to pay. A recent William M. Mercer survey of small employers found that in the past year, the amount of out-of-pocket medical expenses paid by their employees doubled fr Sadly, to cost-saving measures won't take the sting out of rapidly rising heal om $250such$500. th-care costs. Last year firms with fewer than 50 people saw rate hikes average between 11% and 16%, according to the Kaiser Foundation, a California think tank that studies the affordability of health care. And this year small business cus tomers might expect to pay 15% to 20% more to renew their insurance, according t o brokers. The root cause of the problem is something all of us are familiar wit h--medical inflation, the result of an aging population, new and expensive proce To help you navigate the health-care maze--and price of drugs. dures, higher hospital charges, and the soaringpossibly save some money--we've r eviewed some of the most popular policies and programs being used today by corpo Health Maintenance Organizations. HMOs, which require members to stay within a n rate small fry. etwork of doctors and hospitals, won't win any popularity contests. But they are usually 10% to 15% cheaper than their main alphabet-soup alternative, PPOs (pre ferred-provider organizations, which are looser networks that give patients a br oader choice with fewer restrictions). Do your homework when shopping for an HMO . Study the list of available doctors and hospitals to see if it is large enough to meet your needs. The drawback: Some employees may balk at HMO rules; certain Split-funding.referralsthe see specialists. HMOs require This is to little guy's version of self-insurance. You purchase an insurance policy with a high deductible--say, $1,000 for an individual--but t hen make the employee responsible for only a portion of the cost (perhaps $200). Alpine Communications of Des Moines used this system last year and was able to cut its insurance bill by 15%, or $8,000. The drawback: Costs are lower only if your work force is relatively young and healthy. Higher-than-anticipated medical claims can make your company responsible for a big chunk of the deductible, thu Purchasing coalitions. Purchasing coalitions do just what you would expect. They s wiping out any savings.

bring together lots of small companies to buy health insurance. Jeffrey Monroe gets his insurance through PacAdvantage, which buys insurance for 11,000 small C alifornia firms. There is no fee charged for joining the coalition. Monroe's 18person company, MOB Media, an ad agency in Foothill Ranch, gets to choose from a broad menu of insurance options usually available only to large employers. The drawback: Some coalitions charge annual fees that can be several hundred dollars a year. They can't negotiate for discounts, so their rates are no cheaper than Association Health on your own. One more coalitions, association health those you could getPlans. Like purchasing thing: Not every state has one.plans a re an attempt to bring together small companies-in this case firms in the same i ndustry-to buy insurance. Most AHPs are sponsored by trade associations. Partici pants get a choice of HMOs, PPOs, and traditional health insurance from competin g providers. The advantage: The prices you pay may be a bit lower than marketpla Medical Savings Accounts. MSAs work on the same principle as health savings acco ce rates. unts. You purchase a high-deductible policy (the deductible can be as high as $4 ,950 for families) and then use some of the savings garnered from the lower prem ium to set up individual accounts for yourself and your employees. But unlike he alth savings accounts, MSAs are comparable to IRAs. Part of your contribution to them is tax-deductible (up to $3,700 for families). Here, too, money can be sav ed for medical bills in future years. The drawback: Because they were created by Congress, MSAs come with a rigid set of rules that govern the size of the deduc tible and how the personal accounts must be funded. Those regulations have hurt sales, say brokers. Small business lobbyists have tried to relax the rules, but Still they have not not able to get a reform bill through Congress. so farconfused? It's beenyour fault. None of the health insurance options on the market offer a perfect solution. Most involve a tradeoff--either taking on more risk or accepting limits on choice. The trick is to find the policy most closel (c)Fortune Small Business. All rights reserved. y tailored to your needs and, of course, your pocketbook.