athy Steever, office manager of her family's automobile repair shop in Sioux Falls, S.D., is expecting a baby in December. Her father, who also works at the shop, learned last year that he has cancer.
Even so, their company, called Pro Tune Up, canceled health coverage for all five employees last spring. Ms. Steever said premiums jumped by two-thirds, to $2,000 a month, from $1,200 in 2001, just when demand for the shop's services was slowing in a faltering economy.
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The cancellation of benefits at Pro Tune Up added seven adults, including two spouses, and four children to the estimated 40 million Americans without health insurance. Cutbacks at other small businesses squeezed between rising premiums and the sluggish economy are likely to add to that number.
Although most large employers still offer health benefits, fewer small companies are providing coverage. Forty-five percent of employers with three to nine workers now offer no health benefits, up three percentage points from 2001, the Kaiser Family Foundation said yesterday in its annual report on employer-based insurance.
That translates into almost 150,000 more workers and dependents without insurance.
"There has been a significant decrease in the number of small firms offering coverage," said Drew Altman, president of the Kaiser Foundation, adding that the surge in costs would make health care problems more difficult for policy makers in Washington and the state capitals.
Health insurance premiums across the country soared by 12.7 percent, almost eight times the 1.6 percent overall inflation rate, in the 12 months ended this spring, the Kaiser report said.
It was the largest one-year increase since 1990. Jon Gabel, who directed the Kaiser study, said all signs pointed to even higher premiums next year and beyond as costs for medical care and prescription drugs continue rising.
Small businesses had even higher premium increases: exceeding 14 percent for employers with fewer than 50 workers. That has led many small-business owners to abandon coverage, sometimes even for themselves and their family members. "Dad is just taking a chance that he's getting a clean bill of health on his cancer," said Ms. Steever, whose brother owns Pro Tune Up.
Michael Wiston, president of the Valley Marble Slate Corporation, which makes kitchen countertops in New Milford, Conn., said premiums for his seven employees had doubled since 2000, to a total of $39,600, while the services covered had been reduced.
"I have a liver problem," he said. "In another year, I'll be on a list for a transplant. What worries us is: What do they cover, and what don't they cover?"
Workers are paying more of the costs, as higher premiums, deductibles and co-payments for prescription drugs, doctor visits and hospital charges outpace wage increases.
The average share of the premium for single workers rose 27 percent, to $454 a year, and 16 percent, or $2,084, for families. But wages rose only 3 to 4 percent.
Annual premiums for preferred provider networks, or P.P.O.'s, which cover more than half of insured workers, rose to $8,037 for families, including $2,148 on average contributed by each employee. And P.P.O. deductibles rose 37 percent, to an average of $276 a year.
For a family with income of $30,000, added health care costs, including higher payments for drugs, doctor visits and hospital fees, could swallow more than half the average raise, said Mr. Gabel, a researcher at the Health Research and Educational Trust in Washington. He has tracked employer-based health costs since 1987.
"It seems like all we are working for is to pay the insurance," Ms. Steever said.
Mr. Altman of the Kaiser Foundation said, "These numbers have huge implications for the national debate about expanding health insurance coverage, regardless of whether taxes pay the costs or private insurance pays."
"Sharply rising health care costs will propel the issue to the very front of the national agenda," he said, "but they will also make it much harder to solve our big-ticket health problems - drugs for seniors and the uninsured."
Almost all employer health plans use a type of managed care. Only 5 percent still have traditional fee-for-service coverage; 26 percent are in health maintenance organizations; 52 percent are in P.P.O.'s, which have fewer restrictive rules than H.M.O.'s; and 17 percent are in point-of-service plans, hybrids that typically combine features of H.M.O.'s and preferred provider networks.
With prescription drug costs rising 14 percent to 19 percent a year, more than half of insured workers now pay more at the pharmacy. Co-payments for typically lower-priced generic drugs are $9 on average, but the co-payment for brand-name drugs that have generic equivalents has risen 30 percent, to $26, as health plans seek to encourage people to use the generic medications.
Companies are pulling back coverage for retirees, the group that typically needs the most help paying for drugs. About one in three large companies offers retiree health benefits. Only 5 percent of smaller companies - those with fewer than 200 workers - provide retiree health benefits.
More than one-third of large companies have increased their retirees' share of premiums, and 17 percent have raised drug co-payments.
The Kaiser survey was based on telephone interviews with a random sample of 2,014 benefit managers at public and private employers, from January to May 2002. The margin of error was plus or minus 2.5 percentage points.