Traditionally, small businesseshave faced more challenges in providing health benefits toemployees, lacking both size for bargaining power and extensive HRresources. (Photo: Getty)

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Despite feeling optimistic about the economy, small businessowners continue to struggle with the cost of providing health carecoverage to their employees, a new study finds.

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The report by the Commonwealth Fund was based onsurveys, focus groups and interviews of small business owners. Thefindings indicated that business owners are looking for ways to cutcosts and interested in policy changes that would make health caremore affordable.

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Related: 3 ways to position your small business benefitsoffering for success in 2019

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The importance of this group to the nation's economy cannot beoverstated. Small businesses, defined as those with fewer than 500employees, employ approximately 60 million Americans, make up morethan 99 percent of U.S. employers, and create 66 percent of newprivate sector jobs. Traditionally, small businesses have facedmore challenges in providing health benefits to employees, lackingboth size for bargaining power and extensive HR resources, in manycases.

Challenged by costs

The survey finds that costs continue to be a challenge for smallbusiness owners, even in a strong economy. Although 85 percent ofthose surveyed said their businesses were doing well, they alsolisted health care costs as a main concern.

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Chart of small-business health care challenges
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When asked to name the two biggest challenges for theirbusiness, 37 percent included the cost of providing health care toemployees as their first or second choice. That was the top answer,with attracting new customers coming in second at 33 percent.

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The smaller the employer, the bigger the problem, the studyfound. Among employers with 2-25 employees, 45 percent said thecost of providing health care was a major problem. With largeremployers (26-500 employees) 39 percent said cost was a majorproblem.

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"The price tag on health insurance is a significant pain pointfor small employers," the report's authors said. "The problemextends to recruiting and retaining talent. To compete with largeremployers, small employers are hard-pressed to offer benefits likehealth insurance, even as the benefit takes up a larger share ofthe bottom line."

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When asked about specific challenges, small business ownerslisted rising drug costs as a top worry: 25 percent said drug costswere the biggest challenge in providing health care to employees.This was followed by lack of choices in health care plans (23percent) and changing government rules and regulations (18percent).

The trap of cost-shifting

To deal with rising costs, small business owners often have fewattractive options. Many are shifting more health care costs totheir employees: 48 percent said they have increased deductibles orcopays for employees. The second most popular option wasnegotiating with their current carrier for lower rates (29percent); changing insurance carriers came at third (27 percent).Other options included charging higher premiums (25 percent) orcutting back on dependent coverage (16 percent).

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Chart of health care cost reduction strategies
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These findings underline the dilemma faced by smaller companies:strategies for dealing with costs can be counterproductive, ascost-sharing, higher premiums and cutting back on dependentcoverage will make them less competitive in the employmentmarket.

Seeking solutions, not ideology

The report concludes by noting that small business owners,although a conservative group in general, are somewhat apoliticalwhen it comes to dealing with health care benefits. It notes that58 percent said they either strongly or somewhat supported Medicarefor all; a solution favored by the left. But a more conservativeproposal, having small companies band together to purchaseinsurance, also had support: 92 percent said that solution would beeither somewhat helpful or very helpful.

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"Increasing health care costs is not sustainable for smallemployers," the report said. "They want change and are willing totake pragmatic steps. This desire for change does not adhere toparty lines; across the ideological spectrum, small-business ownersare open to a range of possible solutions."

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