The cost of employer-sponsored health care plans for distributors is expected to rise nearly 20 percent for the second year in a row, according to a recent study by the National Assn. of Wholesaler-Distributors. And the double-digit increases are expected to continue.

For distributors, attracting and retaining employees is one of their greatest concerns and a comprehensive benefit package is often a big part of their human resource strategy. However, according to the NAW study, the number of distributors paying 100 percent of health care benefits dropped from 14.5 percent in 2002 to just 11 percent this year. The share of premiums covered by the employer also dropped from 74 percent to 73 percent during the same period.

"These premium increases place enormous pressure on a company's bottom line," said NAW vice president of government relations Jim Anderson. "Distribution firms are sharing the pain with their employees through larger co-payments, higher deductibles and increased premiums for employees, but this is clearly not sustainable."

More working people will find these costs prohibitive and will join the ranks of the 41 million uninsured Americans, said Anderson. This will further exacerbate the problem through increased costs in the medical system from uninsured patients.

In 2001, U.S. Hospitals spent $24 billion providing care to patients who could not pay their medical bills, according to a study from the Urban Institute, a research agency. This was passed along to employers via insurance and managed care providers in the form of a nearly $3 billion increase in premiums.

Lewis Supply Co., Inc. shopped for the best total health care package based on price and benefits, said president Ed Van Dyke. The Memphis, Tenn.-based distributor has still seen considerable cost increases. Van Dyke said there are higher expenses for employees as well.

"Our employees pay a fixed percentage of their insurance costs," said Van Dyke. "In any cost increase, the company and the employees share the burden."

The NAW study showed that larger companies, those with over 500 employees, face a 16 percent increase while companies of 51 to 500 employees face 18 percent premium hikes on average. Hardest hit are firms with less than 50 employees, where rate increases averaged 23 percent.

Haggard & Stocking Associates, Inc., is a small distributor based in Indianapolis. While insurance providers requested 25 percent to 30 percent increases, price shopping allowed the company to hold the increase to about 20 percent, said president Bill Holden.

"It's insanity. We've seen at least five years of consecutive double-digit increases," said Holden. "We pay 50 percent of our employees' health insurance costs, but it ultimately becomes prohibitive for employers to take on these costs."

The benefits of the health care plan have also been weakened in an effort to hold down costs, Holden said. He adds that it's increasingly common for employees who receive raises to see a net loss in take-home pay due to increased health insurance deductions. There are few alternatives for smaller firms, however. One is outsourcing organizations or trade association plans that can help small companies reduce their benefits costs by combining businesses to form a larger pool, said Holden.

Lack of buying power is a major problem faced by small companies, said Alwyn Cassil, spokesperson for the Center for Studying Health System Change. Bigger organizations purchase from a stronger position with respect to price negotiation and the pool of employees over which incident claims are spread, but the greatest savings come from allocating administration fees over the larger pool.

Oliver H. Van Horn Co., Inc., a distributor headquartered in New Orleans, looked into a group plan through one of its trade associations. According to president Charlie Van Horn, the company found that its own, private provider offered a better package. Nonetheless, the plan the company offers its employees is less robust than it was in the past.

NAW is supporting a bill that may help to even the playing field for small employers. Entitled The Small Business Health Fairness Act of 2003, it would allow multi-state operation and certain state regulatory exemptions for trade association health plans. The Employee Income Retirement and Security Act already allows certain large corporate and union health plans to take advantage of these benefits.

The bill recently passed the House of Representatives and was introduced to the Senate by Sen. Olympia Snowe (R-Me.) as S.545. The bill was referred to the Senate's Committee on Health, Education, Labor and Pensions. This legislation also would allow small employers to achieve the benefits of scale now open only to larger corporations.

"It would reduce costs by allowing for increased competitiveness among insurance providers," said Anderson. "Market forces are the best way to restrain cost increases and make affordable coverage available to a greater number of businesses."