Repercussions for Asian American businesses
By Ron Chepesiuk
Last month, Lily Phang, owner of Mango Press in San Francisco, met with a diverse group of female entrepreneurs. After much discussion about the trials and tribulations of being small business owners in a global economy, they all agreed on one thing: The high cost of employee health insurance was making it difficult to thrive, or even survive.
“We felt that the cost is making it hard to compete with the big players in our industries,” Phang said. “[Employee] health insurance is a lot cheaper for big companies, and that makes it much easier for them to attract talent.”
It’s a sentiment all too common among Asian American small business owners. Indeed, the cost of employee health insurance is so high that 51 percent of all U.S. businesses don’t provide it for their employees — a major factor why more than 44 million Americans are currently without medical insurance. About half of U.S. employees work for small companies, and, according to the National Federation of Independent Businesses, a leading trade group, 60 percent of the 44 million uninsured live in households that are headed by individuals who either work for or own a small business.
The problem of health insurance costs has escalated to near emergency proportions, and as a result, many small business advocates are lobbying lawmakers to do something about it. A National Small Business United and Anderson’s Enterprise Group survey found that 49 percent of the 557 owners of small and medium size businesses (SME) polled reported that health care coverage is the number one public policy concern. Another study by American Express found more than three-quarters of the 1,031 small business owners listed affordable health insurance for employees as a “very important” concern. The frustration is understandable, given that premiums for employee-sponsored health insurance rose 8.3 percent in 2000, the largest increase since 1993, according to a study by the Kaiser Foundation and Educational Trust.
For these companies, some relief is expected to come through tax credit, which both Democrats and Republicans support. That measure, anticipated to begin in 2003, would help speed the full deductibility of healthcare expenses for small businesses.
When Isabella Chung and her three partners started Phlair.com, a New York-based technology company that develops cryptographic systems to enable secure online payments, she didn’t offer health insurance coverage to any of her employees. “We knew it’s an important benefit, but given what it would have cost us, we decided that we simply couldn’t afford it,” Chung explained.
Today, Phlair.com has 25 employees who are all covered by health insurance, but the benefits still do not include dental or vision. “We know it’s important to provide full coverage, and I really believe that the employer needs to assume some responsibility for the employee,” Chung said. “But we’re still trying to reach profitability and insurance now represents about 20 percent of our fixed costs.”
Himesh Patel, President and CEO of the Orlando, Florida-based Innhanse Corporation, a provider of technology solutions for the hospitality industry, said that employee health benefits are expensive — but necessary.
“The job market is tight, so we have to offer to compete for workers,” Patel said. “It’s part of the cost of doing business.”
Still, it wasn’t until six months ago that Innhanse began providing health insurance coverage for its employees. Patel said when he started the business there were ten employees. It would have been difficult to survive if he had provided all of them with insurance. Today, however, 50 percent of the company’s employees are covered by a comprehensive health plan.
What upsets many small Asian American business owners — those with 50 employees or less — is the fact that they pay more in premium rates for employee health insurance than the bigger companies do. The reason: insurance is essentially about the pooling of risk.
“The bigger the pool, the less likely all of an insurance company’s resources will be used up on one major event,” said David Cameron, a licensed insurance agent in the Cameron-Hinson Agency in Rock Hill, South Carolina. “The smaller the pool, the more likely it will be that a catastrophic loss will damage an insurer’s ability to pay claims.”
In offering their product to the smaller business, the insurance company considers this factor in their pricing and may even purchase re-insurance to cover the risk.
“That cost is passed on to the smaller business in the form of higher premiums,” Cameron said. “This factor also exists in some way in the premiums larger companies pay, but because the employee base is so much larger, the net impact is much lower.”
Analysts say many reasons help explain the skyrocketing costs of health care. They include fraud, the poor health of the U.S. population, government bureaucracy, the desire of health insurance carriers to maximize profits, and the high costs of prescription drugs and new medical technology.
In the early days of e-commerce, most dot-coms provided stock options as a substitute for health benefits. “Employees were eager to take them because it looked like the Internet would do no wrong,” Patel explained. “But look what has happened since last year. Many dot-coms have gone under and the stock options are worthless. So employees are getting smart. They’re not willing to consider stock options.”
Times have changed, agreed Pierre Wuu, chief operating officer at Click2Asia, a Los Angeles-based media company that reaches out to the Asian diaspora. “You can’t tell a prospective employee today he should take stock options and not health insurance benefits,” he explained. “Providing employee health insurance is a cost of doing business.”
Surprisingly, though, many employees don’t really appreciate health insurance benefits, say some business owners. But as Sidney Yee, President of Cyverasia, a New York City-based media company, sees it, “The role of the employer is to educate the employee about the benefits of health care insurance,” he said. “All 12 employees of Cyverasia are covered by the company’s health plan.”
Last fall, the Employee Benefit Research Institute (EBRI), together with the Blue Cross/Blue Shield Association and the Consumer Health Education Council, sponsored a Small Employee Health Insurance benefit survey. According to the study, small business owners lack knowledge about the nature of the premiums they pay on behalf of workers. “If an employer buys health insurance for an employee, it’s deductible just like any other business expense,” Paul Fronstin, an EBRI senior researcher associate, said. “But roughly 57 percent of the businesses responding to the survey didn’t know that.”
Not understanding how business health insurance works may be a deterrent to getting coverage.
Said Fronstin: “I think there’s a large number of small business owners who don’t think they can get coverage.”
Asian American businesses that do provide coverage can employ a variety of strategies to help keep their costs down:
- Shop around, because no two health insurance plans cost the same. Talk to other business owners to find out how different carriers interact with clients. Get quotes from as many providers as you can and don’t be afraid to change plans.
- Increase the pool. More and more small businesses are taking advantage of the coverage offered through trade associations. President George Bush, Jr. favors association health plans, or AHPs, which can give small businesses many of the advantages large firms enjoy by letting them band together in trade groups to offer health insurance under ERISA.
- Be patient and use all available resources. For example, the National Committee for Quality Assurance (www.ncqa.org) assesses health plans and provides information about how well a certain plan performed in the accreditation process.
- Help reduce premium costs by increasing the deductible. Taking steps like limiting insurance to hospital stays or reducing or eliminating major medical coverage can be deceptively appealing to businesses struggling to deal with health insurance costs.
But, as Cameron explained, “The employee doesn’t know what kind of illness his family will suffer, so that option doesn’t allow him to manage risk adequately. Besides, this option won’t retain employees, especially after they see a situation where a fellow employee has had to bear the brunt of a major expense.”
Therefore, small businesses should consider reducing coverage as their last option.
Contributing writer Ron Chepesiuk is a Rock Hill SC freelance writer. He can be reached at 110423.2656@compuserve.com. |
