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Health of a nation: entrepreneurs are sick of sky-high health insurance premiums, and the government is scrambling for reform. But can uncle Sam save the deteriorating state of health care?

Entrepreneur, March, 2005 by Joshua Kurlantzick

Like The Who's Pete Townshend, Alex Mann, CEO of Clicktime.com, a San Francisco applications services provider that makes products to track time sheets and expenses, could not imagine he's ever get old.

"It's common in the high-tech business--companies never [think] about employees aging, or making any trade-offs of benefits when employees have spouses and kids," says 36-year-old Mann, who founded his company in 1995. When Mann started Clicktime.com, "we hoped to offer a corporate package in which employees wouldn't have to contribute at all to insurance premiums."

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But as costs rose--10 to 15 percent per year over the past six years--and young IT employees started getting married and having children, Mann found health care was swallowing his firm's profits, even though he has just seven employees. "We ask employees to come up with higher deductibles, we shop health insurers, but still, this year we're going to have to look at the issue of coverage again," says Mann.

Mann is hardly unique. Since 200l, health insurance premiums have risen by some 60 percent, according to the Kaiser Family Foundation. In 2004, average per-employee costs for health care rose by 7.5 percent, despite companies' efforts to transfer costs to employees by raising deductibles and co-pays. Census data shows that in 2003, 45 million Americans were uninsured, the largest number since the statistics for uninsured individuals were first compiled in 1987. Many of the uninsured work for small companies, which are less able to absorb rising health-care costs. The Kaiser Family Foundation has found that only 63 percent of small firms offer health coverage, while almost all big companies do. Worse, estimates suggest that U.S. spending on health care is likely to nearly double between now and 2013.

As a result, in the 2004 presidential race, both Senator John Kerry and President George W. Bush made healthcare reform a central plank in their domestic agendas. Now, with Bush's re-election and larger Republican majorities in the House and Senate, the stage is set for some of the president's health reform ideas to pass Congress. Rick Renzi, a second-term Arizona congressman focused on small-business issues, says the GOP wins mean that, over the next two years, Congress has an opportunity to really push significant change. Entrepreneurs can't wait much longer.

AHPS AND HSAS

On the campaign trail, President Bush emphasized several potential reforms that he believes could lower premiums and improve access to care. For one, Bush has pushed for the expansion of association health plans (AHPs). AHPs would let business trade groups offer health insurance plans to their members. The association plans would be exempt from state insurance regulations, which can add costs to small employers' premiums; many large employers are already exempt from these state regulations. In theory, by banding together in AHPs, small employers could negotiate with insurers for better rates. Congressional staffers expect an AHP bill to pass Congress this year, since Bush is expected to push for it.

Bush has also focused on health savings accounts, or HSAs. In one presidential debate, he said, "Health-care costs are on the rise because the consumers are not involved in the decision-making process. It's one of the reasons I'm a strong believer in health savings accounts." HSAs combine a high-deductible health plan with a savings account so employees can save the money allotted if they don't spend it on care. They first became officially available in 2004. By giving consumers the ability to judge the costs and benefits of their health coverage, and to save the unspent money (HSAs can be taken with workers from job to job), HSAs may prompt consumers to use care more wisely, thereby cutting costs.

In a March 2004 study by Mercer Human Resource Consulting, nearly 75 percent of employers said they are very or somewhat likely to offer their employees a high-deductible health plan with an HSA by 2006. Employees may not welcome the news. According to a study by Washington, DC, benefit consulting firm Watson Wyatt Worldwide released in January, less than one third of workers who have health insurance know what HSAs are. Once respondents were given an explanation of the plans, 57 percent said they did not want to pay higher deductibles.

Bush plans to expand HSA utilization, partly by offering tax credits to small companies that contribute to employees' HSAs. He has also proposed extending tax credits for low-income health-care purchasers and has suggested capping the amount employers buying traditional insurance can spend tax-free--a means of encouraging them to shift to HSAs.

THE NET EFFECT

Will these ideas actually slow spiraling costs? Opinion remains sharply divided. "Though they were reluctant at first, nearly every insurance company in the United States now has a health savings account project on the market," says Greg Scandlen, an expert on HSAs at the Galen Institute, a health policy research group based in Alexandria, Virginia. "As the market grows, you'll see competition among the insurers, and it will start to build momentum. As more companies use HSAs, you'll begin to see savings."

Business Services Industry

Health of a nation: entrepreneurs are sick of sky-high health insurance premiums, and the government is scrambling for reform. But can uncle Sam save the deteriorating state of health care?

Entrepreneur, March, 2005 by Joshua Kurlantzick

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