Some small businesses must cut employee health benefits or lay off workers amid global downturn

Small businesses increasingly are eliminating their employee health coverage plans because of rising health care premiums and declining revenue attributed to the current economic recession, the Wall Street Journal reports.

About 10% of small companies are considering ending their employee health coverage plans over the next year, compared with 3% of small businesses in 2005, according to a recent survey by the National Small Business Association. In 2008, 38% of small companies offered health coverage, compared with 41% in 2007 and 61% in 1993, according to NSBA. According to a Hewitt Associates survey, 19% of all U.S. businesses plan to halt providing health care benefits to their employees in the next three to five years.

A rise in health care coverage premiums has contributed to employers eliminating plans, according to the Journal. Premiums for single policies increased by 74% for small businesses from 2001 to 2008, according to the Kaiser Family Foundation. According to Scott Krienke, senior vice president of product lines for Assurant Health, health insurance premiums for small businesses increase by 8% to 16% annually on average, with smaller firms often having the highest increases.

According to the Journal, many employers are choosing to eliminate health coverage instead of eliminating jobs or closing down their business. Some businesses have chosen instead to shift more health care costs to workers, change health insurers, switch prescription drug plans to encourage employees to purchase more generic drugs or offer employees wellness plans that encourage healthy habits as a strategy to reduce health care costs, the Journal reports (Mattioli, Wall Street Journal, 5/26).