When Michael Short opened his Delmont restaurant last month, he felt offering group health benefits was crucial to recruiting full-time chefs. He also thought a health plan might curb the high turnover endemic among part-time workers in his industry.

John Beale, Post-Gazette Michael Short, proprietor of The Boulevard restaurant in Delmont, cuts costs by letting his employees find their own insurance and making contributions to help them pay for it. Click photo for larger image.

But when he found the costs prohibitive, he came up with a novel alternative: Instead of providing a traditional group health plan, Short told The Boulevard's 50 or so employees that he'd make a contribution for each of them to purchase their own insurance.

His might be one of the more radical approaches small employers have taken to cope with runaway health insurance costs. But Short isn't alone in looking for health plan changes or innovations that, for small businesses, increasingly influence whether they can offer coverage at all.

A survey released earlier this month from the Kaiser Family Foundation and the Health Research and Educational Trust found that the number of small employers offering health benefits slid to 63 percent this year from 68 percent in 2001. Another four percent said they were "very likely" to end coverage. The drop-off came as health insurance premiums for all employers surged 59 percent in the past four years, including 11.2 percent in the past year.

The increases, which have pushed the cost of family benefits to an average $9,950 a year and single benefits to $3,695, have been even worse for small businesses, which lack the same bargaining clout as bigger firms. Companies with 24 or fewer employees saw their rates jump 13.6 percent and those with 24 to 49 employees saw an average 12.4 percent increase.

"This is why fewer small employers are offering coverage and why fewer workers are taking up coverage," said Jon Gabel vice president for health system studies at the Health Research and Educational Trust.

For small employers struggling to continue to offer coverage, the options can range from experimenting with new kinds of health plans insurers have developed to older remedies such as switching carriers or shifting additional costs to employees.

	Lake Fong, Post-Gazette Allison McCoy, left, president, and Sondra Ursiak, co-principle of Versarias Insurance & Safety Associates at their office in Indiana. Click photo for larger image.

It requires a lot more analysis and effort than it did in years past, when "it used to be 'here's the [contract] renewal, have a nice day'," said Dave Scott, a partner at ARMS Insurance Group, a Bethel Park brokerage that caters to small and mid-sized business clients.

David Straight, president of the Benefits Network consulting firm here and in Cleveland that caters to smaller employers, said he's found more of them willing to try health reimbursement accounts -- a form of high-deductible coverage for which employers, their employees or both set aside money to pay certain expenses before insurance kicks in.

He estimated that one client with roughly 45 employees paid about $30,000 less this year by using the high deductible approach. The $1,000 deductible -- of which the employer agreed to contribute the first $500 -- applied only to services such as hospital admissions and tests for which the employee didn't already make a co-payment.

Co-pays remained the employees' only responsibility for doctor visits and prescriptions, Straight said. A side benefit for the employer, he added, is that it gets to keep its share of deductibles that go unused.

Some in the insurance industry are touting high deductible plans not only for cost savings, but for making consumers more cost-conscious after years of growing accustomed to health plans that pay most expenses.

For some small businesses, the experimentation with new plans and approaches has meant cutting the cords from Highmark Blue Cross Blue Shield, which doesn't offer health reimbursement accounts to groups of 50 or fewer employees and charges rates for small groups that are higher than some competitors.

The insurance giant, which saw enrollment in its health plans slide nearly 9 percent last year, has made no secret of its problems in the small business market, where it sells health plans both through brokers and through trade associations.

It claims its small group premiums -- which consultant Straight estimated at about $1,100 a month for family coverage compared with as little as $850 a month from for-profit rival Health America -- have climbed because its competitors aren't subject to the same constraints as the Blues.

It's true that other insurers are allowed to assess the health risks of small groups by requiring their members to fill out medical questionnaires. Because the Blues have special obligations under state law, it can't screen for medical risks without first obtaining permission from the Insurance Department.

That's stuck its small group plans with older, sicker members who drive up costs, said Candy Gallaher, Highmark's director of regulatory affairs. The insurer is trying to persuade state lawmakers to enact a bill that would block competitors from screening for risks.

But even the best rates in the small group market, where health benefits for an employee with no dependents are estimated to cost $250 to $350 monthly in this region, were more than Short felt he could pay when he was planning to open The Boulevard.

"It's ridiculous," he said, noting that, with many employees working part-time and most making the minimum restaurant worker's wage, $2.83 an hour, benefits could cost as much as paychecks. Restaurant servers typically make most of their earnings from tips.

By helping employees purchase their own coverage, Short said he figured his contributions, which will vary with the number of hours each employee works, would average about $100 monthly per worker. Each must bring him proof of coverage and pay their on premiums.

A friend and insurance broker, Allison McCoy, recommended the alternative to him.

McCoy, co-proprietor of Versarias Insurance and Safety Associates in Indiana, Pa., said she gained her familiarity with individual health plans because a sizeable number of her clients are self-employed.

The more she watched small group customers, particularly ones with only a handful of employees, "dumping their health plans," the more she began seeing non-group insurance as a way of helping them hang on to coverage.

McCoy said the non-group policies she's sold can save business owners and their employees as much as 25 percent to 40 percent compared with small group coverage. Another plus: The employees can hang on to their plans if they leave the restaurant.

The health plans Short's employees are obtaining come from Aetna Inc., which last year rolled out several non-group health options in Pennsylvania with rates that vary by age.

The coverage, for individuals and families, comes with a range of deductibles that initially may put off some consumers used to employer-sponsored plans that carry only co-pays and sometimes monthly premium contributions. But McCoy said she tells clients to "pay themselves first," putting aside enough savings to cover their deductibles.

With his 50-person staff, Short may still be an anomaly among small businesses that direct employees toward individual coverage and help them with the costs. But such an approach is becoming more common among businesses with just a few employees, said Scott, the Bethel Park insurance executive who also is president of the Pittsburgh Association of Health Underwriters.

The way McCoy sees it: "It's not always the most favorable [option] but it's better than nothing."