(FORTUNE Small Business) – As if war anxieties and recession worries weren't enough, now small businesses have to contend with higher health insurance costs. A recent Kaiser Family Foundation study found that in 2001 the average premium went up 17% for small companies with fewer than ten employees, compared with 11% for their bigger brethren. Here's why: For insurers that are grappling with medical inflation, small companies are more expensive to service, and they have less bargaining clout.

In this environment, small employers are left with few choices. They can join the ranks of the 50% of America's 39 million who are uninsured, or they can be creative. One option is to look for a preferred provider plan--which offers a network of doctors for you to use at a discount--and then negotiate more favorable premiums by increasing co-payments for drugs and office visits. Another strategy is to buy a high-deductible policy and use some of the savings to set up medical savings accounts (MSAs) for yourself and your employees. They can only be used to pay medical bills and are comparable to IRAs. Part of your contributions to them ($3,000 per family) is tax deductible. Up until now, MSAs haven't been very popular. But that should change if a proposal in the Patients' Bill of Rights is approved by Congress as early as this year. It aims to make MSAs easier to operate so they can be a viable crutch for small employers crippled by the health-care system.

--LORI IOANNOU