Soaring health insurance costs hurt small companies more than their big rivals. Here’s how smart entrepreneurs are coping with the crisis.

Patricia B. Gray writes in Fortune Small Business/ that Rich Gallo can’t afford to provide health insurance for his nine employees. For a long time he put off buying insurance for himself, figuring he needed time to shop carefully. Gallo’s desk was piled high with policy proposals when he suffered a heart attack.  Lacking insurance, he delayed going to the hospital for several hours.

“I could have died,” says the 50-year-old owner of Office Outlet, an office-products supplier in Indiana, Pa. Medical care related to Gallo’s heart attack cost $200,000, which was paid by the state welfare department, a foundation affiliated with the hospital, and donations from Gallo’s church.

Gallo isn’t the only small business owner struggling to cover the cost of health care. The long-simmering crisis has reached a flash point in the past few months. Premiums on group policies have soared by as much as 30%, on top of double-digit increases in each of the past five years. Coverage is shrinking. Thanks to insurer consolidation, policy choices are more limited than ever. And in a seller’s market for insurance, small business owners have little room to negotiate prices or terms.

The escalation of the health-care crisis couldn’t come at a more difficult time. Sales and profit margins are dwindling amid a weakening economy and a credit crunch. As a result, companies can no longer pass higher health-care costs on to their customers.

“Many of our members are wrestling with very tough issues,” says Karen Kerrigan, CEO of the Small Business and Entrepreneurship Council, an advocacy group based in Oakton, Va. “Do they lay off some workers in order to provide coverage for the rest?”

President Barack Obama has promised reform, but health care is only one item on an urgent to-do list that is also crowded with two wars, a ballooning budget deficit and a faltering economy. Health care may indeed get a sweeping overhaul under the new administration, but policymakers will probably exercise caution in changing a system that accounts for 16% of the U.S. economy. Many powerful interests will have their say in crafting legislation, including (but not limited to) insurers, state regulators, doctors and the drug industry. Proposals range from eliminating employer-based health insurance and requiring all Americans to buy plans through state-run agencies, to lowering the cost of insurance by allowing employers to join insurance associations that pool risk across state lines.

Read the whole story at