WHEN HEALTH INSURANCE PREMIUM increases for employer-sponsored coverage averaged 7.5 percent in 2004, it almost called for celebration: In 2003, rates were up 10.1 percent. In 2002, they jumped a full 14.7 percent. Anecdotally, small builders report even steeper increases, some as high as 40 percent in one year.

The prices of premiums—which don't even capture the rapidly escalating cost of prescription drug coverage—help explain why small businesses have consistently ranked “health-care costs” as their top concern in a study conducted every four years by the National Federation of Independent Business and Wells Fargo. It seems, though, that the issue's become even more pronounced. Two-thirds of respondents cited health-care costs as a critical problem in the study released last May, compared with 47 percent in 2000.

The greater those concerns have grown, the more active—and aggressive—small builders have become in implementing strategies to curb costs. Some have taken their activism national, lobbying for federal legislation to allow association health plans, which they believe could save as much as 15 percent or more across state lines. Back at home, they're talking more often with insurance brokers, shopping for the most efficient packages, taking on more risks to cut costs, and educating employees to become wiser health-care consumers.

“It's a balancing game. I'm trying to contain costs without cutting benefits,” says Michael Brodsky, owner and chairman of The Hamlet Cos., based in Salt Lake City. So far, Brodsky's been able to maintain his goal of paying 100 percent of the health insurance premium for Hamlet's 54 eligible employees, largely by changing insurance carriers two years ago and opting for plans with higher deductibles.

That's a change from three years ago when Hamlet's plan included no deductible.

After trying a couple of different deductible levels, the company thinks it's found a formula that works: partial self-insurance. The company contracts with the insurance carrier for higher deductible levels ($500 for an individual and $1,000 for a family), but Hamlet reimburses the first half of the employee's out-of-pocket payment.

By agreeing to cover the first half of the deductible, Hamlet assumes some of the risk that used to rest with the insurance carrier. But, says Scott Carter, Hamlet's human resources director, the tradeoff is worth it. The change saved the builder about $40,000 last year.

The company spent some of that savings on adding an accident rider to its health insurance policy. The addition triggers insurance to pay the first $1,000 in costs related to accidents (the employee deductible is applied after the first $1,000). The rider bumps the company's rate up slightly, but Carter says it's a valuable expense since Hamlet's employees tend to be young, with growing families.

Competitive Edge Hamlet has also used competition to its benefit. Its broker collects bids with a variety of coverage options from each of the Salt Lake City area's six insurance carriers. This year, that competition helped Hamlet lock in an 11 percent rate increase; its carrier dropped down from an 18 percent increase when another company beat its bid.

New competition in the Detroit area, where Blue Cross Blue Shield of Michigan controls most of the insurance market, worked to the advantage of Hometowne Building Co.

Learn more about markets featured in this article: Salt Lake City, UT.