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More Manageable Care

THINK ABOUT YOUR HEALTH PLAN long enough and you're bound to feel sick. Health-care expenses for small businesses increased 5.2% from 1997 to 1998, says a new study from the Henry J. Kaiser Family Foundation. That's nearly four times the inflation rate.

So you'd expect entrepreneurs, smarting from sticker shock, to rush into managed care, especially its lowest-cost variety -- plain-vanilla health-maintenance organizations, which control costs by keeping employees inside their networks of doctors and hospitals. Not so. Small companies are actually fleeing HMOs (chart). Instead, the trend is toward managed care with a twist -- preferred provider organizations and point-of-service plans, which allow patients to pay extra to see their doctor of choice.

Why the shift? Employers find that good health benefits are key to recruiting in a tight labor market. And employees want fewer restrictions on their medical care. "When you get really sick, you want to be able to go to the Mayo Clinic," says the study's author, Jon Gabel.

But peace of mind comes with a price. PPO and POS family plans on average cost 20% more than HMOs. So small businesses are reducing coverage for dependents and shifting more costs to workers -- an average of 9% more per month for family premiums.

A lower-cost alternative, currently available in 14 states, is to join a health-care purchasing cooperative. Such coops buy health insurance in bulk for member companies and often offer three or four different plans. Coops are favored by the smallest employers, Kaiser notes, with 9% of companies with 3 to 9 employees signing on, vs. 3% for companies with 50 to 199 employees. If you're most concerned about giving your employees a range of choices, check triple-option insurance, where an insurer offers up a menu of treatment plans at reduced rates, thanks to its lower overhead.

That will dull the pain of rising costs, but it won't stop it. As long as the labor market is this tight, "it's just the cost of doing business," says Kaiser's Larry Levitt. Aspirin, anyone?

By Dennis Berman in New York

This article was originally published in the Apr. 26, 1999 print edition of Business Week's Frontier. To subscribe, please see our subscription policy.

Top CHART: HMOs: A Weak Pulse


CHART: HMOs: A Weak Pulse

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