AS HEALTH-CARE costs rise, small-business owners find themselves in a precarious situation: Offer employees health benefits at a potentially devastating cost to the company or drop benefits altogether and risk alienating their staff.

According to data from the Menlo Park, Calif.-based Kaiser Family Foundation's 2008 employer benefits survey, the average premiums for health insurance coverage at smaller firms rose 5% to $4,586 for singles and $12,091 for families. Those rising costs have forced many small-business owners to bail out of the benefits-granting game altogether. In fact, just 54% of the small-business owners polled in the American Express OPEN Small Business Monitor semiannual survey said they were offering health-care benefits to employees — a steep drop from the 71% who said they were offering them last year.

Business owners who cut health benefits do so at a potentially great cost. Offering benefits is one way that small-business owners attract and retain qualified workers — a constant challenge. By doing away with them, they risk losing their competitive footing.

But there are ways business owners can avoid taking that gamble. Here are eight strategies for cutting health-care costs without cutting coverage:

Sign up as many people up as possible

Just as buying in bulk can help you save on office supplies, having as many employees participate in your company’s health plan as possible can deliver savings. According to Marion Schremp, chief executive of Multiple Benefit Services, an employee benefits firm in Kennesaw, Ga., signing up everyone who's eligible can trim your premiums by up to 5%.

Renew later in the year

Jan. 1 may seem like an ideal time to renew your company’s health benefits plan. However, according to Schremp, underwriters get so inundated at this time of year that they will boost rates by 1% to 3% for firms that choose to renew on New Years’ day. For this reason, she suggests firms provide a two-month buffer before and after Jan. 1. If you already have a plan that renews at the height of the season, consider only renewing your current plan for three to six months and then renew again.

Keep track of employees

The last thing you want to do is foot the health-care bill for former employees, says Schremp. Worse still, if former employees who are still covered by your plan fail to make a payment, you'll be on the hook with the insurance company, she adds.

Offer competitive benefits

Providing more comprehensive benefits than necessary is a surefire way to jack up costs, says Marian Mulkey, senior program officer at the California Healthcare Foundation in Oakland, Calif. But if you skimp on coverage, employees may flee for better opportunities. To keep employees happy and costs minimal, provide benefits that are on par with the competition. To get a sense of what your competitors offer, check out studies from consulting firm, United Benefits Advisors, the Society for Human Resource Management or some chambers of commerce, suggests Schremp. Industry trade groups and third-party benefits managers should also have this information.

Offer wellness incentives

A healthier staff usually means lower premiums, says Jerry Ripperger, director of consumer health for Principal Financial Group, an insurer in Des Moines, Iowa. As such, look into wellness programs, which offer financial or other incentives to promote health and fitness. Programs might include nutrition or healthy living classes, ridding the workplace of junk-food or a newsletter that includes health tips. While some wellness programs can cost upwards of $40,000, some insurers provide the service for free.

Work toward reducing claims costs

To reduce premiums further, consider setting up a disease management program for employees with chronic illnesses such as diabetes and asthma. The aim of these programs, which typically include such things as health screenings, blood tests and more frequent checkups, is to keep employees healthy and costs under control, says Ripperger. Again, some insurers will provide this service for free.

Offer HSA-qualified health plans

Offering a plan that has a health savings account, or HSA, option allows employees to use pretax dollars to pay for medical expenses, such as medications and co-pays. Because insurance plans that are eligible for HSAs carry high deductibles, premiums for such plans are generally lower. According to the Kaiser Family Foundation, small firms pay an average of $9,794 annually toward the cost of family coverage for an HSA-qualified plan and $3,915 for singles. For non-consumer-directed plans, small firms contribute an average $12,400 toward the cost of family coverage and $4,621 for singles.

Share more of the cost burden

If your business is really struggling to afford health-care coverage, consider passing more of the costs on to your workers. According to Sam Gibbs, a vice president at eHealthInsurance.com, an online insurance broker in Asheville, N.C., employers in most states can pay just 50% of the premium. This will, of course, cause some employees to chafe. But if you explain the difficulty you’re having keeping up with costs, they may decide that something is better than nothing.

Other recent smSmallBiz stories:

• Starting Up: Improve Your Chances of Landing a Business Loan
• A Bad Time to Become an Entrepreneur?