Vowell & Sons of Martin, Tenn., is a microcosm of pro dealers everywhere that have been chipping away at their employees' health insurance benefits to try and offset rising healthcare costs and a depressed economy.

Fifteen years ago, Vowell paid 100% of its employees' premiums. In 2001, it required employees to pick up half of their families' coverage, and two years later it made workers pay for all their family coverage. Three years after that, in 2006, Vowell started requiring employees to pay for some of their own coverage. Today, individuals pay 20% of their cost, and the bill could have been higher; last year, the dealer got whacked with a 28% premium increase that it chose not to pass along.

CFO Steven Vowell says he already has prepared his "we will not offer health insurance anymore" speech, and he fears he might need to deliver it sooner than later if rates keep escalating. His broker tells him Vowell & Son is at the tip of the iceberg, despite (or, some would argue, because of) sweeping federal health care legislation that promises eventual savings for individuals and companies.

This gradual slippage is part of a nationwide trend. Just last month, the Census Bureau reported that the percentage of Americans covered by employment-based health insurance declined to 55.3% this year from 56.1% in 2010. And it's particularly painful for pro dealers like Vowell who regard health insurance as an important part of the tissue connecting companies with their associates.

"Health care is the last thing we'd cut," asserts Sandra Simmons, co-owner and benefits administrator for Mountain Lumber in Boone, N.C. Mountain Lumber covers its 16 employees under a BlueCross small-group plan with a $2,500 deductible for individuals and $5,000 for their families.

In Taos, N.M., Randall Lumber & Hardware still pays 100% of its employees' premiums. The 21 employees covered under its plan, though, pay for their family members' coverage, which runs about $2,800 per year, says Paula Ervin, the dealer's president.

Still, Randall Lumber–which currently shells out $6,500 per employee, or about 2% of its total annual revenue–this year doubled its employees' deductibles to $4,000. At the same time, it entered into a supplemental plan that Ervin says reduces its associates' maximum out-of-pocket expenses. She worries that employees will simply opt out of the company's plan if their burden goes higher, "and that could be detrimental to the company if they aren't taking care of themselves."

The trend among small businesses in all sectors nationwide, though, has been "larger deductibles with savings options," says Jon Gabel, a health care expert based in Washington with the National Opinion Research Center. Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs), which allow employers and employees to set aside tax-deferred money for healthcare-related expenditures, have grown as a way for companies to shift more of their costs to workers.

National Movement

"Dealers definitely are moving toward higher co-pays and a higher percentage of shared payments by employees," adds David Garrett, executive director of the Eastern Building Material Dealers Association in Lancaster, Pa., which might offer a group plan to its membership within two years (see "Group Therapy," page 18).

Most dealers would welcome any relief, as the ravages of the recession have pushed them to narrow–and in some cases eliminate–their health care benefits. In 2008, Big L Corp. of Sheridan, Mich., stopped offering health insurance altogether to workers who at the time had been paying only 10% of their premium costs for coverage. "We weren't making money, and we had to make some tough decisions," recalls Kenneth Lehman, Big L's president. "We looked into other plans, but concluded that many of our employees wouldn't be able to afford them."

Surprisingly, Big L lost only one associate as a result of discontinuing this benefit. "We were open with our employees, and they remain loyal to us and are glad to have a job," says Lehman. Garrett, though, believes that over time, eliminating health insurance would be detrimental to dealers' recruiting and retaining employees.

Given that there's only so much any dealer can do to hold down health care costs, many now seem focused on cushioning the premium shock to employees who inevitably are and will be paying more for coverage.

"What's frustrating is that the premium structure never seems to change, no matter what the deductible is," laments Ed Dietrich, president and CEO of Deerfield Builders Supply in Deerfield Beach, Fla., which offers plans through a preferred provider organization (PPO), a health-maintenance organization (HMO), and an HSA.

A Slippery Slope

Dietrich knows of what he speaks: even as his company's premiums increased by 5.5%, 19% and 11% in 2011, 2010 and 2009, respectively, its deductibles for its 33 employees have also jumped to where they now start at $3,000 for an individual and go as high as $11,800 for family coverage.

A few months ago, Lummus Supply Co. switched carriers to BlueCross BlueShield after its previous provider, Kaiser Permanente, jacked up its rates by 30%. "You almost have to switch carriers every three or four years just to keep them honest," says the Atlanta dealer's president, Bill Lummus. By hiking its co-pay to $40 from $25 and doubling its deductibles for individuals and families, Lummus Supply limited this year's premium increase to 5%.

Randall Lumber and Mountain Lumber have reoriented their co-pays in favor of preventive care. In Mountain's case, employees pay $25 for preventive services, whereas other doctor's visits and services go against employees' deductibles. Previously, the company had a straightforward 80/20 plan, and making this change kept its premiums per employee at $399 per month; otherwise, says Simmons, that cost would have increased to $500.

The uncertainty about future costs and the new federal health care law are making it doubly difficult for construction supply companies to figure out what's best for their operartions.

Gabel, for one, expects to see more companies self-insuring or buying stop-loss insurance as a hedge against premium inflation. What he'd like to see happen is the current system of fee-for-service medical care be replaced by a managed care system, where physicians are on salary with hospitals, as 40% already are, he says.

Gabel can't fathom the controversy surrounding "Obamacare," as the Patient Protection and Affordable Care Act has come to be called, when "it's actually the same as the 1993 Republican [health care] bill." But Republican presidential hopefuls are promising to dump it if elected.

And the law will probably end up before the U.S. Supreme Court, whose decision about its constitutionality "could be huge, because every state is moving in a different direction," says Rita Ferris, president of the Northeastern Retail Lumber Association.

The first phase of the health care revamp required employers to extend their coverage for laid-off employees and workers' children up to the age of 26. Dealers' health care plans that emphasize preventive care align with the law, which prohibits cost-sharing for certain preventive measures like vaccinations and mammograms. The law also prohibits annual spending caps, says Gabel.

50-Worker Anxiety

Companies with fewer than 50 workers won't be penalized if they discontinue their insurance plans and divert employees to health-care exchanges, where people without coverage from work could purchase insurance. While Lummus of Lummus Supply rejects such a maneuver as an abrogation of his company's responsibilities to its employees, executives at Randall Lumber and Big L can at least envision exchanges becoming an option of last resort if insurance coverage for employees gets too pricey.

Some dealers are willing to give health care reform a chance. Under the law, Mountain Lumber received its first tax credit for its health care coverage in 2010, and will again this year.

"I'm probably one of the only people you'll interview who is looking forward to Obamacare going into full force in 2014," says Simmons. "It isn't perfect, but what we have now is everybody receiving the benefit but not paying for it. That can't go on."

Other dealers, worried that healthcare costs will be an ever-ballooning line item, are waving the white flag and speaking out in favor of letting the government take over the entire system. "Universal health care is appealing to me because so many of my competitors have an advantage by not offering any coverage," says Dietrich of Deerfield Builders Supply. Vowell adds that if the U.S. is inexorably moving towards socialized medicine, "let's go straight to it and take the onus off of business."