By Karen E. Klein

Q: We're a small info-tech consulting company that launched earlier this year. I'm shopping for affordable, or at least competitive, health insurance for our five employees. Where can I find something reasonable?
-- M.L., Clearwater, Fla.
A: Providing employee health coverage is one of the most difficult tasks facing entrepreneurs. You need to be able to offer health insurance if you want to attract and keep good people. But many insurers don't sell small group policies at all, or sell only policies with relatively limited health coverage. Others will sell small group insurance, but the premiums are enough to literally break the bank.

If you're one of those rare entrepreneurs with free time on your hands, you might want to research insurance coverage yourself, either online or by asking other small-business owners, to get a feel for some of the options out there. But typically, the best way to find insurance is to work with a knowledgeable broker in your area, says Mike Sullivan, executive vice-president of Digital Insurance, based in Atlanta. "For groups under 50 or even under 25, insurance agents are best-positioned to help you," says Sullivan, whose firm provides infrastructure for brokers that specialize in small-business coverage.

A good broker will not only find you the best insurance coverage for your employees at the best price but will also educate you about the insurance marketplace. "Health insurance in this country is expensive, and it's not getting any cheaper," Sullivan says. "People are continually trying to solve the problem with a silver bullet, but it really doesn't exist."

GROUP POWER.  The insurance industry is plagued by "churn," which occurs when companies switch carriers frequently hoping to get better rates. And though those lower prices can be tempting, Sullivan doesn't recommend the practice. "Somewhere between three and eight competitive carriers are out there, and their prices ebb and flow according to the market," he says. "If you change companies, you might save 10% in a given year, but you need to look at how much it costs [in the long run] to make the change."

Find a broker by asking your peers -- either within your industry or in your region -- what insurance agency they use, Sullivan recommends. Check to see which brokers and agencies in your area have online presences that reflect desirable sophistication about the market, he says.

Once you find a broker you like, ask him or her about whether small employers are banding together in your area to negotiate group-purchasing arrangements. The bargaining power of a larger group might allow you to negotiate a much better price than you could get alone. Trade associations, regional business groups, and local chambers of commerce sometimes establish collective-bargaining entities for health insurance. Check to see if anything like that exists in your region or industry.

HIRE A PRO.  A new medical coverage option set up by a 2004 law allows employers to establish Health Savings Accounts (HSAs) for themselves and their employees. The HSAs allows individuals to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. These accounts can be offered to your employees if you purchase a health insurance plan with a high deductible -- $1,000 minimum for an individual employee and $2,000 for an employee with family coverage. Ask your broker whether this option could work for your company.

An alternative solution is for your company to hire a "professional employer organization" (PEO), which charges a monthly fee per employee to become that employee's "employer of record." These companies enter into "co-employer" status with your company and take over responsibility for your employee benefits and tax administration.

Some PEOs also offer to handle details such as payroll, recruiting and training, annual evaluations, and retirement plans. Because "employer of record" companies work for many businesses, they can leverage their group size to provide competitively priced comprehensive group medical, dental, and life insurance.

Gene Zaino, president of MyBizOffice (www.mybizoffice.com), provides insurance benefits and optional services such as customer invoicing, cash collection, and general liability insurance. "'Employer of record' firms like ours are particularly valuable for small firms that don't have internal human-resources departments," he says. "Business owners have enough to do to run their companies day-to-day -- they're glad to have us take over the increasingly tough burden of paperwork and administration, as well as provide employee benefits."

Have a question about your business? Ask our small-business experts. Send us an e-mail at Smart Answers, or write to Smart Answers, BW Online, 45th Floor, 1221 Avenue of the Americas, New York, N.Y. 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues