Torture, technically, could be thought of as a few different things: fingernail removal with pliers, hot pokers to sensitive anatomy, water drips to the forehead, being staked out and left for the sun to bake and ants to feast, and according to some, Metallica at extreme decibels. But if you ask distributors, owners of small-, mid- and large-sized companies and CFOs, torture could, more accurately, be called health care renewal time.

With the constant rise in health care costs, employers are finding themselves in the unenviable position of choosing the lesser of several evils in a situation. They could take the increase in the gut, flirt with losing it all, and protect their employees; they can pass the costs along to the employees, therein sharing the burden; or they could change providers, forcing everyone into choosing new doctors and the like. Each situation strains the working relationship between employee and employer, a tenuous and delicate web at best.

"There is no worse time than health care renewal," says Jack Schron, Jr., president of Jergens, Inc. , a metalworking, automatic assembly and tooling distributor headquartered in Cleveland. "It is a no-win situation. Costs increase, and when faced with that, we could change the benefits, switch the carriers, or pass the costs on to the employees. All these things can minimize costs, but they also create some upheaval: more paperwork and having to switch doctors. That only makes the decision more difficult."

But when faced with those options, the tendency to protect the employees and their sensibilities may not be the best business decision.

"Health insurance is killing me," says Glen Korff, president of Crabtree Industrial Supply , a cutting tools, calibration, fixturing, and related machine tool accessories distributor headquartered in Wheeling, Ill. "When business was good, there were far more benefits for the employee to work with in the small company; and good health insurance was something they could count on here. But over the last 18 months, we've had to go with a higher deductible and increased co-pays, and we've switched plans within the provider twice."

According to the 57th Annual Survey of Distributor Operations , conducted by INDUSTRIAL DISTRIBUTION, 82 percent of the distributors polled said their health care costs had increased. Nearly half of those who responded said they had increased 11 to 20 percent. Another 23 percent said they had increased 31 to 40 percent. To offset those increases, 37 percent of the responding distributors increased the employees' share of contribution; 27 percent found a new health insurance provider; 28 percent increased the deductible; and 2 percent eliminated coverage entirely.

The health insurance cost issue isn't exclusive to the industrial distribution industry. Most companies, along any industry, are struggling with health insurance increases. What could possibly make the industrial distribution industry weather this storm easier?

That answer is currently residing in Congress. And its form is that of an association-wide insurance initiative. In the most simple of terms, the bill would allow an association to provide health insurance for all its members and their employees. The hook is that the coverage would be national — moving beyond state lines. An association with that many members would have an incredible amount of leverage with any insurance provider.

"The employer is no longer able to shoulder the increases in costs," says Jim Anderson, vice president-government relations of the National Assn. of Wholesaler-Distributors . "Costs have risen in the double digits over the last two years. How many companies have had profits of more than that? The employer is acting on that discrepancy, by increasing premiums and co-pays, and scaling down benefits."

In more specific language, H.R. 660, the Small Business Health Fairness Act of 2003 in the House of Representatives, and identical legislation, S. 545, in the Senate, authorizes the formation and multi-state operation of both self-funded and fully insured health plans sponsored by certain trade associations.

This health care option would certainly be looked on favorably by the industry. As of now, associations have to tell members that they are, for all intents and purposes, on their own.

"We have no way of helping our members with their health care," says Georgia Foley, executive director of the Specialty Tools & Fasteners Distributors Assn.

"A few years ago, we looked into an association plan, but we would have to work with four or five carriers to cover the 50 states. All three bids had higher premiums for less coverage. The legislation is a favorable move, and we will pursue it if it gets passed. But as of now, we tell our members that a local provider would do better for them."

Other associations also are waiting to see what happens with the association legislation.

"We've worked closely with NAW for years, and the smaller associations, as members of NAW, are supporting their stake in the legislation," says Joe Thompson, executive vice president of the National Assn. for Hose & Accessories Distribution. "We've set up a task force to establish what's possible for us if the bill passes, and we are exploring any other options aggressively. Our goal is to find out what we can do to provide a service for our members and keep their costs down. At this point, we're really quite frustrated with what we can't do."

Distributors see the pending legislation as one other option in their fight against rising health care costs.

"If it brings some continuity," says Schron, "then we'll certainly look into it. But we also take into account the administrative issues, including paperwork, fees and policy management."

According to Anderson, there are about 41.2 million uninsured people in the United States. About 85 percent of those uninsured people have jobs. A majority of those uninsured employees are working within the small business community. Those numbers prove that the existing health insurance marketplace is not working for a lot of people, he says.

"All large and small business should be concerned about this," says Anderson. "Because everyone gets medical attention when they need it, there is a cost shifting phenomena. Those that can pay for medical insurance also are paying for the people that can't afford it. That increases the benefit costs for everyone."

In contrast to the arguments put forth by the big insurance carriers, Anderson argues, the association health plans (AHPs) will make the small group market more competitive, and increases neither government control nor the prices of health care. The increase comes only in the number of insured employees, specifically because of decreased coverage costs. Bigger programs and coverage competition will lower costs.

"Even with a self-funded insurance plan, our costs rose 16 percent last year," says Jack Healey, senior vice president and chief financial officer at Industrial Distribution Group, Inc. , an MRO supply distributor headquartered in Atlanta. "Our costs are shared with the associates: 75 percent is corporate and 25 percent is the associates' responsibility. We had a bad year last year, and asked the associates to continue working without raises and with work furloughs instead of vacations. To ask them to pay more would have been unfair of us. In combating this next year, where we anticipate an 11 percent increase, we are looking at our plan's competitiveness, and how it matches up with other plans, as far as co-pays and deductibles."

Being self-funded gives IDG the opportunity to tailor their plan to what their employees use most. The company's health insurance "team" sees the amount of emergency, heart care and prescription claims (not who makes them), etc. made against the plan and can try to gauge the next year's claims.

"Last year, in property, casualty and health insurance, IDG had a $2.5 million increase," says Healey. "But in tailoring our health insurance program, we can attempt to control the cost."

"Health care will get better, but costs will continue to increase," says Korff. "Eventually, the benefits to working for a small company will be overshadowed by the health care options of the larger companies. But since I'm also, technically, an employee of the company, any changes affect me as well."

Says Schron, in a statement that could be echoed throughout the industry, "Health care is the most out-of-control budget item, and there's nothing you can do about it."