Sept. 1, 2005--The high cost of health insurance is the number one concern among small business owners, according to a study released in August by the National Federation of Independent Business. The study, titled "Small Business Problems and Priorities," reported that insurance costs were a critical issue for 65.6 percent of respondents, the highest percentage for any problem in the survey's 22-year history.

In response to these concerns, a growing number of small businesses have begun offering their employees other options and incentives in lieu of medical benefits. A survey of 300 small businesses with fewer than 200 employees showed that 14.1 percent had offered incentives such as increased annual salary and contributions to other personal accounts to employees who choose not to participate in the company health plan.

Jamie Amaral, director of health research and development at the NFIB, said there are a number of factors leading employers to look for alternatives to the basic company health care plan. Apart from the expense, Amaral said that employers are frustrated by plans that cannot cover the varying needs of individual employees. "A one-size-fits-all health care plan offers either too much coverage for healthy employees or not enough for older or sick employees," Amaral said. "It's very difficult for an employer not to alienate his or her employees with these types of plans." Amaral also pointed out that most insurance carriers require a 75 percent participation rate for a company to qualify for the group rate. For companies with few employees, even 3 or 4 employees who choose not to participate forces employers into purchasing coverage under individual rates.

From an employee perspective, Amaral said there are some advantages to these types of cash incentives. "Employees know what type of coverage they want, so it makes sense to let them shop for the plan that suits them best," she said. "This is a very strategic move for employers and employees," Amaral added. "Companies don't buy auto insurance or life insurance for their employees, so why should health insurance be any different?"