March 6, 2006--Citing rising costs, a majority of small businesses in California now no longer provide health-care coverage for employees, a new statewide survey shows.

The results come as the U.S. Senate considers a bill this week involving association health plans -- which would allow small employers to band together to purchase insurance. Trade groups and other supporters say the legislation would free business owners of restrictive state regulations and force insurers to offer more competitive rates.

The California survey, which was released March 2 by the San Francisco-based Union Bank of California, found that 52% of the 2,000 small businesses polled said they no longer offer employee health-care plans -- the first time in the annual survey's six-year history that a majority do not.

Of the 48% of firms that still do provide coverage, about a quarter said rising costs have forced them to shift a larger burden to workers, while reducing overall benefits.

"We've found that the experience of small-business owners generally mirror those of mid-sized companies and of large multinationals in that the rising cost of providing health care to their employees is becoming prohibitively expensive," Phil Flynn, the bank's chief operating officer, said in a statement.

The findings match those of a national study released last fall by the Kaiser Family Foundation, a Menlo Park, Calif.-based health-care policy research group, which showed a steady decline in the number of businesses offering health insurance in the past five years -- what the group's president and CEO Drew Altman called the "drip, drip, drip of coverage draining out of the employer-based health insurance system."

According to the Kaiser study, which surveyed some 3,000 employers nationwide, just 60% offered health benefits, down from 69% in 2000. Among businesses that offered no coverage, the majority had fewer than 200 employees, the study said -- most citing cost as a key factor.

Since 2000, health-insurance premiums have surged 73%, the study reported, with annual premiums for family coverage reaching $10,880 in 2005. Of that amount, workers paid about $2,713, or 26%. And while premium increases slowed in 2005 -- to 9.2% from 11.2% in 2004 -- they continue to rise faster than inflation and wages, researchers said.

On Wednesday, the Senate will consider a bill that would let small businesses band together in shopping for employee health coverage across state lines -- a strategy currently available only to much larger corporations.

Under so-called association health plans, or AHPs, small businesses could purchase insurance from national trade associations and industry groups, enabling them to seek more competitive premiums, the bill's sponsors say.

In his State of the Union speech on Jan. 31, President Bush hailed the plans as a way of reining in employer costs.

Yet, several bills allowing AHPs, which critics say pit state insurers against the federal government, have passed the House in recent years, but not the Senate.

"If we don't do something to help small business cope with the costs of health care, soon we will have an entire workforce without health insurance coverage," Sen. Ben Nelson (D-Neb.), one of the bill’s sponsors, said in a statement: "Health care premiums are experiencing double-digit growth annually; small business can't keep up with the costs."