By Kevin McKeough

Posted on Chicago Business powered by Crain’s on March 21, 2011

In 1999, Ron Cowgill was paying $9,643 a year for health benefits for the six people working at his Glenview home-remodeling business, D/R Services Unlimited Inc., plus two children. By 2010, the insurance was covering five people and one child, but his costs had risen to $78,000, in large part because two employees had serious medical problems.

Unable to find less expensive coverage, Mr. Cowgill eliminated the health benefit. The move helped him stay in business despite a drop in revenue to $800,000 last year from $2.4 million in 2009. It also allowed the two employees with problematic medical histories to enroll in the Illinois Comprehensive Health Insurance Plan, a state program for people with pre-existing medical conditions that isn't available to those with employer-provided health benefits.

“Just dropping the two people with pre-existing conditions would have lowered our premium, but I couldn't do it,” Mr. Cowgill says. “Before I canceled it, I researched it and made sure they had a place to go.”

Even for small businesses with healthy employees, the cost of health benefits has been a major hurdle. On average, businesses with 200 or fewer employees pay 18% more for the same health insurance than larger employers, according to the University of Chicago's National Opinion Research Center.

In 2008, monthly small-group health insurance premiums in Illinois averaged $393 for individuals and $1,035 for a family, according to a study by America's Health Insurance Plans, a national association in Washington, D.C. Those costs in part reflect consolidation in the market: Six insurers provide nearly 85% of the health insurance in the state, according to Michael McRaith, director of the Illinois Department of Insurance.

The Small Business Advocacy Council, a year-old non-profit based in Northfield, hopes bringing together its members to obtain health benefits will hold down costs. The SBAC is working with Arthur J. Gallagher & Co., a $1.86-billion brokerage in Itasca, to create a health insurance option for members.

The SBAC membership includes about 200 small and mid-sized businesses. “We want to form a large critical mass and say if you want to work with us, you're going to have to be competitive,” says Elliot Richardson, SBAC's president. His goal is to enlist at least 1,000 employees of SBAC members in the program.

“We want to form a large critical mass and say if you want to work with us, you're going to have to be competitive.” — Elliot Richardson, president, SBAC 

 There are precedents. The Oak Brook-based Illinois Manufacturers' Assn. had a health insurance trust fund from the 1950s to 2002. The association's members could participate, paying premiums that covered medical claims up to a certain dollar amount annually.

The effort enjoyed success for many years, with more than 1,500 companies and around 60,000 of their employees participating in the early 1990s, says Mark Frech, the association's executive vice-president. Eventually, though, businesses that had large claims saw their premiums increase by up to 150% a year, while companies with low claims were seeing increases of as much as 30% annually, Mr. Frech says. That led to an exodus that reduced participants to fewer than 200 companies and 2,000 employees, at which point the trust could no longer find insurers that would provide reinsurance, leading to the program's demise.

This Article was posted by Chicago Business powered by Crain’s on March 21, 2011 For the original post visit: http://www.chicagobusiness.com/article/20110319/ISSUE02/303199998/can-gr...