By Edmund L. Andrews

Like thousands of other business owners around the country, Dwight Messinger got the bad news last fall. As the owner of Power Curbers Inc., a manufacturer of paving equipment in Salisbury, N.C., Mr. Messinger had already seen his company's health insurance premiums jump 25 percent in 2003 while benefits were trimmed. His own wife had been denied reimbursement for a precautionary colonoscopy.

Now, shopping desperately for lower prices, Mr. Messinger learned that premiums for his 94 employees would rise another 19 percent this year - to $749 a month from $634 a month last year.

Unable to raise prices on his products, Mr. Messinger is doing what thousands of other business owners are doing: asking employees to pay more, accept less, or both. This year, workers will have to pay a bigger share of the premiums for family health coverage. Down the road, he worries about cutting costs by eliminating coverage for routine doctors' visits.

"I never thought the day would ever come when I would say this, but we will be heading to socialized medicine, and pretty quick, if we don't do something about this," said Mr. Messinger, who describes himself as a lifelong conservative.

Among small-business owners, health care costs are issue No. 1, and the reason is simple. While those costs are rising at double-digit rates for almost everybody, leading to higher numbers of people without insurance, they have climbed even faster than the average for small companies, which were already less likely than large employers to offer any kind of health insurance.

Only about 47 percent of small companies offer health insurance, according to surveys by the National Federation of Independent Business, an advocacy group in Washington - though the figure is significantly higher, above 70 percent, for companies with more than 20 employees. By contrast, 98 percent of businesses with more than 200 employees offer coverage.

A survey of 2,800 companies by the Kaiser Family Foundation last fall found that insurance premiums increased 15.5 percent in 2003 for those with fewer than 200 employees and 13.2 percent for larger enterprises.

Because they are rated largely on the age and health experience ratings of their workers, businesses with a slightly older work force or a handful of employees with significant medical bills can see their rates soar 20 or 30 percent.

"If you are a company with two or three employees, there is no one you can really go and talk to," said Gary Clasko, vice president of the Kaiser Foundation. "It really feels like it's outside of your control."

According to the foundation's survey, 26 percent of companies with fewer than 200 workers reported rate increases of more than 20 percent last year, compared with 20 percent at large corporations.

Horror stories are everywhere. John Seeger Jr., the chief executive of Dayton Rogers in Minneapolis, a manufacturer of precision metal products with more than 300 employees, will pay 24 percent more for health insurance this year. One reason is that a handful of employees required expensive hospital care, including one dependent of an employee who needed $1.2 million in medical care over the previous two years.

The National Association of Manufacturers, a trade group in Washington whose members include hundreds of small employers like Power Curbers, estimated that health care costs now account for a far higher share of labor costs in the United States than in most other countries, putting companies here at a disadvantage competitively.

The National Federation of Independent Business, which represents 600,000 small companies, now places health costs at the top of its political agenda. "The smaller the company, the bigger the problem," said Dan Danner, the federation's executive vice president and top lobbyist.

But there are no easy solutions. Hospitalization costs and prescription drugs are responsible for much of the soaring rates. President Bush, prodded by small-business lobbying groups, has thrown his support behind the concept of "association health plans," which would be federally certified insurance programs that would pool the risks of many small companies and allow them to gain more clout in bargaining for better rates with insurance companies.

"It's a jobs issue, it's a competitiveness issue and it's a human issue," said Senator Jim Talent, Republican of Missouri, an advocate of legislation to permit association health plans.

But even ardent supporters acknowledge that these plans would provide only partial relief. And the politics are treacherous. Most governors and state insurance regulators oppose the idea, because they do not want to weaken individual state requirements for minimum health care coverage and financial standards for insurers. In fact, one reason many small companies like the idea is that it would free them from state requirements to cover things like chiropractic care or routine checkups.

Opposition is also intense from Blue Cross Blue Shield, which is the largest provider of insurance to small employers and has thousands of employees across the country.

Finally, Democratic presidential candidates and many Democratic lawmakers are calling for a more sweeping expansion of government-financed health care.

Both of the leading Democratic candidates have proposed big increases in federal spending on health care as well as specific measures aimed at small businesses. Senator John Kerry of Massachusetts, the front-runner, would allow businesses with fewer than 50 employees to buy insurance through the system that covers federal employees. He has also proposed a tax credit of 50 percent for the health coverage costs of small businesses.

His chief rival, Senator John Edwards of North Carolina, has proposed giving federal money to states for the creation of insurance pools for companies with fewer than 50 workers, and tax credits for small companies with low-income work forces.

If Congress fails to pass any new health care legislation this year, which is likely, employers will face a grim choice: absorb higher costs at a time when they cannot raise their prices, or alienate employees with cuts in benefits.

Entrepreneurs who employ only a few dozen people or fewer find themselves devoting big chunks of time to the intricacies of competing health insurance proposals. And though many companies say their business has improved along with the national economy, they do not feel they can pass along rising health care costs to customers.

Starbak Communications, a company in Waltham, Mass., that makes equipment to transmit video signals over the Internet, is expecting sales to jump to about $7 million this year from $4.5 million last year. But the company's chief executive, Gregory L. Casale, is cutting back on health care benefits to reduce the impact of a 10 percent rise in premiums to about $514 a person each month. That translates into an overall increase of $240,000 a year at a time when the company is still not making a profit.

Mr. Casale, who recently relocated many of his employees to Waltham from Columbus, Ohio, is trying to keep costs down without losing workers who are already struggling with Waltham's higher cost of living.

"You hire a good employee, but then they say they aren't getting what they're looking for," he said. "Retention wasn't a concern over the past few years, when jobs were hard to find, but we saw that changing in the last part of last year. They are looking much more closely at perks and benefits, at what's being offered by our company compared to what's being offered by rivals to lure them away."

To reduce the company's costs, Mr. Casale is considering requiring his employees to pay 20 percent of the cost of health insurance premiums. To ease the sting, the company would offset part of the added expense to its workers by offering them new benefits for life insurance and disability insurance.

Even companies larger than Starbak find themselves in the same situation. Those with several hundred workers are big enough to self-insure, often setting up their own health care plan and hiring a traditional insurance carrier to administer it. Self-insurance gives some companies an alternative to the prices demanded by insurance companies, but it is no panacea.

Mr. Seeger, of Dayton-Rogers, operates a self-insured program of health benefits. But he still needs to buy backup insurance to cover costs if expenses exceed the amount his company has allocated in its self-insurance plan. Because of a handful of very expensive medical cases in the last few years, those additional insurance costs are climbing rapidly.

Thus far, surveys by the National Federation of Independent Business indicate that few small companies are ending health insurance benefits entirely. But many are relying more on temporary workers and part timers, who do not necessarily get any insurance, or are outsourcing work to foreign countries. That trend is unlikely to end this year.